A
chip shortage that started in a surge in demand for personal computers and
other electronics for work or school from home during the pandemic is beginning
to impact car production around the world.
On 9 February
2021, General Motors (GM) said that it would extend production cuts in the
U.S., Canada, and Mexico until the middle of March. They join a long list of
major automakers, including Ford, Honda and Fiat Chrysler, which have warned
investors or slowed vehicle production because of the chip shortage.
But it’s not
just the automotive industry that’s struggling to get enough semiconductors to
build their products. AMD and Qualcomm, which sell chips to most of the top
electronics firms, have noted the shortage in recent weeks. Sony blamed the
chip shortage for why it’s so hard to get a PlayStation 5 game console.
Chips are likely
to remain in short supply in coming months as demand remains higher than ever.
The Semiconductor Industry Association said in December that global chip sales
would grow 8.4% in 2021 from 2020′s total of $433 billion. That’s up from 5.1% growth between 2019 and
2020.
A huge boom
in electronics sales
The Covid-19
pandemic has spurred demand for consumer electronics. The first wave involved
people buying PCs, monitors and other gear for working or going to school
remotely. Then, last fall, home entertainment gadgets like game consoles, TVs,
smartphones and tablets started flying off the shelves. Smart home products are
projected to have big demand in 2021 as well.
All these
devices include a ton of chips — not just the central processor which can cost
tens or hundreds of dollars, but also less expensive little chips for
controlling the display, or managing power, or operating a 5G modem.
Why is it so
hard to compete on chips?
Chipmaking is a
high-volume business that calls for incredible precision, along with making
huge long-term bets in a field subject to rapid change. Famous companies such
as Texas Instruments Inc., International Business Machines Corp. and Motorola
have exited or given up trying to keep up with the most advanced chip
manufacturing. Today most companies focus on design. With only three companies
-- TSMC, Samsung and Intel -- still making advanced logic chips, and the
American company is struggling to keep up, a crucial skillset has become
concentrated in the hands of just a few.
Chips are made
in plants that cost billions to build and equip. They have to run flat-out 24/7
to recoup their investment. But it’s not just that. Yield, or the amount of
good chips per batch, determines success or failure. It takes years of knowhow
and experience to get a yield of 90% out of the complex photolithographic
process used to make chips.
With not enough
chips in supply, the automaking industry could lose $61 billion in 2021,
according to consulting firm Alix Partners as Bloomberg reported. But those who
have enough stockpiles like Toyota, who had stockpiled four-months-worth of
chips to ride out the shortage, are reaping the benefits now. Toyota raised its
full-year earnings forecast by 54%.
The consequences
of chips shortage are production delays, as stated above, and price of final
goods. The final goods manufacturers may hold back any price increase
temporarily because of recessionary pressures and thus absorb in the short-term,
at least, cost of delays. When will normalcy return? That’s for another
article.
Reference:
1.
Kif
Leswing, Why there’s a chip shortage that’s hurting everything from the
PlayStation 5 to the Chevy Malibu, 10 Feb 2021, CNBC
2.
Debby
Wu, Sohee Kim, and Ian King, Why the World Is Short of Computer Chips, and Why
It Matters, 18 Feb 2021, Bloomberg
3.
Avery
Hartmans, Chip Shortage: How It’s Impacting Cars, Smartphones, Gaming Consoles,
15 Feb 2021, Business Insider
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