Chip crunch to last into 2023?

The crisis has slammed the brakes on the auto industry, and smartphone players are cutting down on their production goals for next year.

Are these immediate causes of covid-19?

Does being dependent on Taiwanese chips TSMC “pose a threat to the global economy?

With $10.4trn of global stimulus consumers are spending more on goods than usual, stretching global supply chains that have been starved of investment. Demand for electronic goods has boomed during the pandemic, but a shortage of microchips has struck industrial production.

Let's have a look at how chip shortage has impacted various industries:

Headsets & Speakers:

· Bang & Olufsen is paying more to secure semiconductors for its products in a tight market. The scarcity of specific vital components, which the company thinks will last another 12 to 18 months.

· Increased costs for components and logistics had a 5.5 percentage point negative impact on its gross margin during the latest fiscal quarter.

· In April, they began raising prices by an average of 2% across its portfolio, focusing more on higher-priced items with less sensitivity from consumers. Those pricing actions only cover some of the increase in costs.

· Component shortages are having a severe impact on sales of certain products, such as a newly launched headset which has been limited in supply.

· The company is also looking for alternative means of transport — for example, moving more goods via ship and train and less via airfreight to keep the cost low.

Automotive:

· Major car companies are expected to report a drop in third-quarter U.S. sales, analysts predict, as the lack of semiconductors dents vehicle production

· Bottlenecks in Asia and the challenge of boosting the output of the auto sector’s more-basic computer chips could prolong the parts crisis into 2022.

· The global chip shortage has slammed the auto sector this year, cutting factory output by several million vehicles and erasing billions in revenue for car companies.

· Chip shortage has morphed from a short-term crisis into a structural upheaval for the automotive supply chain that could take years to overcome fully.

· Semiconductor manufacturers are gradually phasing out the low-tech, low-margin chips that are prevalent in new vehicles, raising concerns about the availability of those chips further out

· Automakers are faced with a two-pronged challenge: finding the chips they need to keep their factories running today while game-planning to ensure a longer-term supply, which includes more U.S.-based manufacturing of semiconductors.

· If they don’t make feature-rich chips that only the auto industry uses, all of our jobs are at risk.

· Many auto manufacturers are already redrawing their 2022 plans.

· Auto suppliers canceled chip orders because of concern over weak demand during the pandemic. Consumer electronics companies soaked up much of that capacity, leaving car companies and their parts suppliers with a shortage of chips when car sales snapped back in the summer of 2020.

· Automakers are moving towards more-advanced chips as they introduce electric and connected cars, that upgrade will put them into more-direct competition for chips with makers of consumer electronics.

· Japanese carmakers were among the hardest-hit by the chip shortage last month.

· China-based car makers have mitigated the shortage’s effects by keeping sufficient inventories, ordering directly from chip makers, and speeding up testing domestically manufactured chips. Because of stringent virus-control measures, the Chinese economy recovered faster than other major auto markets, leading to an early rebound in demand.

· The shortage has upended the auto industry due to historical demand for new cars, leading to factory shutdowns, longer wait times, and higher prices.

· Tesla rewrote its software to survive the chip shortage. The company was able to swap substitute chips after rewriting its firmware

Smartphones:

· Shipments are slowing, and prices are rising as companies hunt for parts; supply-chain wait times enter the danger zone. Phone manufacturers purchase essential parts roughly half a year in advance, but now those stockpiles have shrunk.

· For Samsung Electronics Co., the world’s largest smartphone maker, problems sourcing essential parts contributed to an expected 20% drop in shipments from the previous quarter.

· Alphabet Inc.’s Google said its Pixel 6 Series 5G device would be available only in the U.S, Japan, and a few other selective markets.

· Xiaomi in India increased the cost of selective devices by 8% higher than the original price.

· Smartphone unit sales for the rest of the year also look relatively flat compared with 2019 and 2020.

· The average wholesale price for phones worldwide went up 5% in the April-to-June quarter.

· If you have limited chips, where will you put them? The ones that give you the most profit — hence it’s beneficial for the brands to invest more in premium devices.

PC:

· Robust demand for laptops is projected to stretch into next year despite chip shortage. The virtual world and work from home have given a boost to the PC demand.

· A pandemic-fueled run on computers helped HP Inc. and Dell Technologies Inc. deliver strong financial results for the latest quarter despite a semiconductor shortage denting some industries.

· PC shipments rose 13% in 2020 and are expected to increase 18% in 2021 despite the semiconductor shortage.

· The heavy purchasing of notebooks, which typically are cheaper but less powerful, also drives a higher frequency of replacement purchases

· HP and Dell, the Nos. 2 and 3 PC vendors, shipped roughly 19 million and 13 million units, respectively, in the first three months of 2021, or increases of 64% and 23% from the comparable year-earlier period.

Medical devices — Ultra Sound:

While only a tiny fraction of the world’s chips end up in medical equipment compared with cars and consumer electronics, the components are critical to a range of vital devices like MRI machines, pacemakers, and blood-sugar monitors for diabetes. S biggest medical technology companies have also persuaded suppliers to give it a priority on the basis that their products improve people’s health.

Little knows components — Substrates:

· Right now, all you have to do is say you manufacture substrates, and you will get the business. Entry cost for semiconductors and other chip components is very high. Adding a new substrate factory can take a year or two.

· The global chip shortage is giving rise to a small group of little-known companies whose products are increasingly essential to the plans of semiconductor industry titans.

· The companies that make them aren’t household names and are based mainly in Asia.

· Chip companies have largely outsourced substrate production to improve chip performance rather than low-cost items with relatively meager returns.

· Intel said in a statement that the company has secured substrate capacity dedicated to Intel products and has embraced new ways of working with substrate suppliers to support their longer-term investments.

· With chip makers projecting high demand to continue, substrate suppliers are in a rare position of strength. Some have taken advantage of the demand to raise prices and improve their profit margins slightly

Now, let’s talk about movers and shakers of this Industry!!!!

Taiwan Semiconductor Manufacturing co. TSMC

· TSMC has a market cap of around $550 billion; it ranks as the world’s 11th most valuable company· TSMC generated 56% of the global revenues. They make 92% of the world’s most sophisticated chips. Most of the roughly 1.4 billion smartphone processors worldwide are made by TSMC.

· TSMC’s hard-driving culture and deep pockets will make it hard to create a more diversified semiconductor supply chain anytime soon.

· Other countries would need to spend at least $30 billion a year for a minimum of five years “to have any reasonable chance of success” in catching up with TSMC and Samsung.

· Huawei’s attempt to design and manufacture their own semiconductors will take a minimum of 5 to 10 years. China won’t reclaim Taiwan shortly because the move could disrupt its supply of chips.

· Nvidia and Qualcomm found that by pairing with TSMC, they could focus more on design without the hassle of running their factories or worrying about handing their intellectual property to a competitor to manufacture. AMD sold off its fabs and became one of TSMC’s biggest customers, as did other significant players until only a few advanced chip makers were left.

While the U.S. still leads the world in chip design and intellectual property with homegrown giants like Intel Corp., Nvidia Corp., and Qualcomm, it now accounts for only 12% of the world’s chip manufacturing, down from 37% in 1990.

· TSMC is now the exclusive supplier for the leading processors in iPhones.

· With EUV, TSMC became one of two companies, with Samsung, to make the most advanced chips with the smallest transistors possible, used in the world’s top smartphones

· Almost all microchips that go into all new vehicles, including Audi, come from TSMC in Taiwan. TSMC has little incentive to reallocate production. The less lucrative auto chips make up only around 4% of its revenues.

So what all does this mean to you and me? Disruptions often lead people to question economic orthodoxies. So we might have to wait for a longer time to get hold of our favorite gadget; we might have to pay more for consumer electronic products in the months and years to come. I would love to see in the next decade more diversity in the chip Industry. For now, future growth will depend on a swift resolution to the global semiconductor shortage so we can stay optimistic and prepared.

Student for life. Story teller, creative thinker, woman in tech. Just some one who wants to be happy!

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Bhavya Siddappa

Bhavya Siddappa

Student for life. Story teller, creative thinker, woman in tech. Just some one who wants to be happy!

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