Chip deficiency means problems from cars to game consoles

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As computer-based technology plays a greater role in everyday life, the demand for the semiconductors driving it has steadily increased. Fulfilling that need usually goes smoothly, but the pandemic has disrupted it. Now makers of everything from video game consoles to cars are dealing with a shortage of microchips.

General Motors (ticker: GM) was the last company to disclose the extent of the damage. Management told investors early Wednesday that it expected an impact of $ 1.5 billion to $ 2 billion this year based on adjusted earnings. The company has had to shut down production at three plants in Canada, Mexico and the US until mid-March, said Tuesday.

“GM’s plan is to use every semiconductor available to build and ship our most popular and in-demand products, including full-size trucks and SUVs and Corvettes for our customers,” the company said.

GM isn’t the only major automaker to be affected.

Ford Motor

(F) has ceased production of at least one factory;

Volkswagen

and its subsidiary Audi have also scaled down production.

Modern cars and trucks contain dozens of chips, a number that will only increase as more cars have assisted drive technology or are built with electric motors. In 2022, Deloitte estimates that each car will have about $ 600 in chips, roughly double the $ 312 in 2013.

That shift, plus the pandemic, are the main drivers behind the current crisis. When the coronavirus spread last year, new car sales slumped. Car makers thought the recovery would take years, so they dug deep into their inventory instead of buying new chips,

Analog devices

(ADI) CEO Vincent Roche said Barron’s last month.

A specific bottleneck appears to be a type of semiconductor called microcontrollers – essentially very small computers – that are used for things like motor control systems, New Street Research analyst Pierre Ferragu said.

Semiconductor manufacturing in Taiwan

(TSM), one of the world’s largest chip makers, and other executives have confirmed the problem with the microcontroller.

Unlike some other products, speeding up chip production can be time consuming. The Semiconductor Industry Association recently said that it normally takes 26 weeks from when a car company orders a chip to when it is delivered. For more advanced microprocessors, production capacity sometimes needs to be secured years in advance.

In addition, Ferragu wrote, trade tensions between the US and China caused some chip manufacturers to shift production from the China-based

Semiconductor Manufacturing International

to Taiwan Semi. Such changes interrupt production as chip designers adjust their supply chains and manufacturing moves from one factory to another.

As for how long the deficit will last, Ferragu says, there’s no easy fix. Supply constraints were mentioned across the board as semiconductor companies reported their financial results in recent weeks.

And fixing the deficit can bring its own problems. Companies supplying chips to the auto industry have a sense of how demand is developing for the first quarter, and the outspoken among them warn that inventory could increase as auto companies order aggressively, Ferragu wrote. That creates the potential for abundance.

Still,

ON Semiconductor

(ON) CEO Hassane El-Khoury said Barron’s last week that there is at least no immediate concern about stock buildup at this point. For example, El-Khoury said that if chips he ships to a distributor aren’t sent to a manufacturer within a week, his company will refer them to another customer, who would want them immediately.

“I’m going to have the conversation with them because I have another end customer who would like it today,” he said.

For other chip-dependent industries, the shortage is likely to persist for at least the first half of the year, possibly longer.

Advanced Micro Devices (AMD)

CEO Lisa Su said the supply shortage is likely to persist until the second half of the year. That suggests video game consoles of both

Sony

and

Microsoft

Video game consoles could remain in short supply in 2021.

Ferragu wrote in a research note that smartphone sales are still expected to double, despite delivery restrictions. Still, his team is following the increase in the production capacity of chips at companies such as Taiwan Semi,

Samsung Electronics,

and GlobalFoundries.

Since companies make different types of semiconductors, stocks often respond differently to supply problems. For companies like Micron Technology (MU) that makes memory, tighter inventory usually correlates with rising prices, adding to the bottom line.

Investors seem to see the deficit as a positive factor. The PHLX Semiconductor index is up 41% in the past six months, while the Nasdaq Composite is up 28%.

Write to Max A. Cherney at [email protected]