Shortage of microchips: why is there a semiconductor crisis and how it could affect you

Since then, one technology company after another has warned that they too face limitations.

Samsung has reported problems fulfilling orders for the memory chips it makes for its own products and those of others.

And Qualcomm, which makes the processors and modems that power many of the major smartphones and other consumer devices, has the same problem.

Like many other things that are wrong in the world, it is partly due to the coronavirus.

The locks stimulated the sale of computers and other devices so that people could work from home, and they also bought new devices to fill their spare time.

Meanwhile, the auto industry initially saw it a big drop in demand and cut your orders.

As a result, the chip makers changed their production lines.

But then, in the third quarter of 2020, car sales recovered faster than expected, while demand for consumer electronics continued unabated.

However, with existing foundries operating at full capacity, building more is not easy.

“It takes 18 to 24 months to open a factory after you start it,” said analyst Richard Windsor.

“And even once you build it, you have to adapt it to increase production, which also takes some time,” he adds.

“This is not something that can be turned on and off just like that.”

The deployment of 5G infrastructure demand is also increasing.

And Huawei placed a large order to build a chip reserve before US trade restrictions prevented it from ordering more.

The auto industry, on the other hand, has a relatively low margin and tends not to pile up stocks, which is why it is now in trouble.

Recently, TSMC and Samsung, the major chip makers, spent billions of dollars to accelerate a very complex new manufacturing process of 5 nanometer chips to power the latest advanced products.

But analysts say the sector is suffering from underinvestment more generally.

“Most Tier 2 foundries have posted low profits, low margins and high debt in recent years,” says a recent report from Counterpoint Research.

“From a profitability perspective, it is difficult to consider building a new building [planta de fabricación] for smaller foundries “.

And many of these chip makers will respond to the extra demand by raising their prices instead.

Windsor does not expect the chip shortage to be resolved until July.

Others suggest longer.

“We believe that the semiconductor industry’s supply constraints on both wafers and substrates will only be partially lifted in the second half of 2021, and that there will be some stiffness at the forefront until 2022 (computers, 5G chips),” said a bank. of America research paper.

And a chipmaker told it The Wall Street Journal that the order book is so large that it would take up to 40 weeks to fulfill an order placed by a car manufacturer today.

This could have expensive side effects.

Consulting firm AlixPartners has predicted that the auto industry will lose $ 64 billion in revenue because it had to shut down or cut production.

However, that amount should be seen in the context of an industry that typically generates about $ 2 trillion in sales per year.

There are also geopolitical implications. The United States is still at the forefront of component development. But Taiwan and South Korea dominate the chip manufacturing industry.

And TM Lombard economist Rory Green estimates that the two Asian countries account for 83% of the world’s processor chips and 70% of memory chips.

“Like OPEC for oil, Taiwan and South Korea are monopoly chip producers,” he wrote, adding that their market share would continue to grow.

That has sparked concern in the United States, where a lobby group mentioned the current crisis “the canary in the coal mine” for the future shortage of supply lines.

And a group of 15 senators wrote to President Biden urging him to take steps to “encourage domestic semiconductor production in the future.”

Perhaps the worst hit country is China, which makes more cars than any other country.

As a result, research firm IHS predicts that 250,000 fewer vehicles will be produced in the country in the first three months of the year.

Beijing has always wanted the country to be more self-sufficient in semiconductors.

But the United States has taken steps to block local businesses that use American know-how to do this, arguing that they also supply the Chinese military.

The current crisis will not only give Chinese leaders reasons to redouble their efforts. It also shows how disruptive it would be to pursue one of his other ambitions: unification with Taiwan.

For now, consumers planning a purchase they have to take into account a few things.

Waiting times for some car models will increase. And some devices may also be difficult to find.

The biggest players, such as Samsung and Apple, have the purchasing power to take precedence.

But smaller brands can be disproportionately hit.

“That means the products could become more expensive, or at least not drop in price as would normally be expected,” says Ben Wood of consulting firm CCS Insight.

“And supplies will be limited,” he adds.

“So if there’s a piece of equipment you really want, don’t think about waiting to see if there’s a better deal in a few months.”

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