Chip shortage peaks during pandemic, how does it affect the industry?
The world’s biggest chipmaker company TSMC in August announced a plan to raise prices of its chips by 10%-20%. Samsung and Key Foundry on 31 August announced a plan to raise their foundry prices by 15%-20% at the end of 2021 or early 2022. Major tech and automotive companies rely heavily on semiconductors to manufacture their products, but chips are getting even more difficult to get hold of.
Chip shortage started in early 2021 as consumers began to purchase more computers and electronic devices during the COVID-19 pandemic. Even since December 2020, the Semiconductor Industry Association already projected that global chip sales will grow 8.4% in 2021, up from 5.1% a year earlier. According to Gartner data, in 2020 alone, PC sales grew 4.8% to 275 million units.
Aside from the rise of demand in the electronic sector, there was also a shift of business model in the semiconductor industry. Many of the biggest semiconductor companies only design the chips and the technology in them, or “fabless”. They then contract other companies like TSMC and Samsung, known as foundries, to actually make the chips. This shift created a bottleneck.
Politically, the trade war between the United States and China, which was sparked by Donald Trump, affected the industry as well. During Trump’s administration, the US restricted China’s biggest foundry, Semiconductor Manufacturing International (SMIC), from getting advanced chip manufacturing gear and made it so much more difficult for SMIC to sell its finished products to US companies. Therefore, tech companies had to shift to TSMC.
Several companies stockpiled chips before the US policy came into effect. Huawei, for example, outsmarted Trump by hoarding chips, which are vital for 5G technology, from SMIC. Toyota also stockpiled materials and even projected that its earnings will rise by 54% in 2021.
On the other hand, chip shortage in February began to take its toll on American automotive company General Motors. The company announced that it extended temporary shutdowns at three assembly plants, namely in Kansas, Ontario and San Luis Potosí.
Around the same time, Ford Motors was forced to cut down its profitable F-150 production, which the company projected would drag down its earnings by $1 billion-$2.5 billion. The automobile industry doesn’t even need the most advanced chips for their products, but the effect appears to be just as severe.
Apple CEO Tim Cook on the company’s Q3 earnings call last month warned that iPhone and iPad sales might be affected by the global semiconductor shortage.. However, the fact that Apple’s revenue growth rate is picking up pace and the company also expands its digital services might soften the impact of the industry-wide chip shortage.
Chip shortage also threatens the existence of Sony’s Playstation 5 and Microsoft’s XBOX Series X/S. There are two possibilities for these products: either the manufacturers reduce the production or raise the already expensive price of the game consoles.