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7 May, 2021updated 12 Oct 2021 05:43

Semiconductor shortage hits carmakers and tech giants

The global semiconductor shortage has hit tech companies such as Apple and Samsung as well as leading carmakers. The EU is responding with a with chip pact scheme.

By Robert Scammell

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The semiconductor shortage is expected to last into 2022. (Photo by STR/AFP via Getty Images)

Samsung and Apple both expect to take a sales hit in the second quarter of 2021 because of the ongoing global chip shortage as the crisis continues to plague the automobile industry, with BMW-owned Mini and Jaguar Land Rover the latest companies to pause production.

A perfect storm of Covid-19, severe weather, factory fires and soaring demand for silicon has resulted in an unprecedented shortage affecting multiple sectors.

As both a manufacturer and consumer of semiconductors, Samsung finds itself in the unique position of rising chip profits from silicon-hungry customers but slumping sales of its own mobile devices as it struggles to stretch its supply across its own devices and orders to its own fabrication plants.

“Due to the global semiconductor shortage, we are also experiencing some production disruption around certain set products and displays,” says Ben Suh, executive vice-president of investor relations at Samsung.

The South Korean company said it would focus on “maximising efficiency” of its current capacity and expand output at its Pyeongtaek number two line.

Big names suffer from chip shortage

The crisis did not prevent Apple from reporting blowout quarterly results in late April, with CEO Tim Cook telling investors that the company had been able to fall back on chip reserves for its iPhones and Macs. However, it anticipates losing $3bn to $4bn in sales in the current quarter as it gets squeezed by chip supply issues.

Qualcomm, one of the world’s biggest suppliers for mobile phone chipsets, also reported an earnings beat but said its revenues and profits would have been higher if it were not for the semiconductor shortage. Incoming Qualcomm CEO Cristiano Amon told investors that the chip shortage was going to get better for the US firm “at the end of the year.”

Bundesbank chief economist Jens Ulbrich told Reuters that the German central bank expected semiconductor shortages to “worsen somewhat in the second quarter.” He added that it “could then normalise from the middle of the year”. The supply bottlenecks now pose a risk to Germany’s economic recovery, economists have warned.

Previously executives from semiconductor companies Intel, Nvidia and Taiwan Semiconductor Manufacturing Company (TSMC) have said they expect the crisis to run into 2022.

In late April, BMW-owned Mini became the latest manufacturer to temporarily stop making cars because of difficulties sourcing chips, pausing production for three days at its Oxford, UK factory. This came just after Tata Motors’ Jaguar Land Rover paused UK production due to the microprocessor shortage.

Carmakers worst hit by chip shortage

Automakers have been particularly hard-hit by the chip shortage. After cancelling orders when the pandemic first broke because of slumping sales, car manufacturers found themselves at the back of the queue with semiconductor suppliers, who had redirected manufacturing capacity to the booming consumer electronics market.

Extending existing production lines can take months, and ones from scratch can take years and cost billions of dollars. In this case, it’s going to be quite some time until the crisis has abated. Tom Fairbairn, Solace

The squeeze on semiconductor supply has also affected sales of next-generation games consoles such as the PlayStation 5 and the Xbox Series X.

The chip shortage is primarily affecting older generation semiconductors that are more widely used in cars than modern consumer electronics. Today’s cars can easily contain more than 100 chips and, according to GlobalData Automotive analysts, “modern vehicles are as reliant on computer chips as they are on their engines and chassis.”

Ford anticipates the chip shortage will have to cut vehicle production by 50% at a cost of $2.5bn in lost sales.

Government and industry response

In response to the chip shortage, semiconductor suppliers have announced plans to expand capacity. Chipmaking equipment supplier BE Semiconductor said its focus was on “ramping production to meet customer delivery dates.”

It follows recent announcements of a $20bn investment from Intel and $100bn from TSCM to increase chip-making capacity.

As part of his $2.3trn infrastructure plan, Joe Biden has earmarked $50bn for semiconductor research and manufacturing in a bid to increase domestic supply. The manufacturing of physical chips is concentrated in a handful of foundries largely based in Taiwan, South Korea and the US.

The EU is reportedly mulling the creation of a semiconductor alliance between European chip manufacturers to reduce dependency on offshore supply chains, according to Reuters. It could see a leading chipmaker encouraged to build a major fabrication plant within the EU.

However, these investments will not alleviate the current crisis as it will take time to expand fabrication facilities and even longer to build new ones.

“There are only so many chips to go round, and with such a limited supply, it may be quite some time until a healthy pipeline is re-established,” says Tom Fairbairn, distinguished engineer at enterprise network architecture company Solace. “Fabs are complex, time-intensive operations that require expensive expertise and intellectual property to construct.

“Extending existing production lines can take months, and ones from scratch can take years and cost billions of dollars. In this case, it’s going to be quite some time until the crisis has abated.”

Verdict analysis of recently published government figures showed that UK-based carmakers forced to halt or reduce production in recent months have been placing workers on Covid-19 furlough and claiming their wages from the Coronavirus Job Retention Scheme, raising the question of whether their struggles were directly attributable to the pandemic or due to the semiconductor shortage.

This article originally appeared on the Verdict network.

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