Global semiconductor shortage hits "crisis" levels

As the worldwide shortage of semiconductors worsens, consumers are facing rising prices and shortages of products such as games consoles, cars, TVs and smartphones.

The shortage of chips - the "smart" element within every electronic device - has been gradually worsening since last year. Initially, the problem was a temporary delay in supplies as manufacturing plants shut down when the Covid-19 pandemic first hit.

Although production is now back to normal, a surge in demand fuelled by the effects of the pandemic has pushed the problem to a crisis point.

The rise in demand has been driven by a boom in sales of computers and TVs, the launch of 5G-enabled smartphones and new games consoles, as well as the increased investment in electric vehicles by automotive firms.

Also read: Bosch eyes June opening for new semiconductor plant in Dresden

Even some of the biggest players have been affected by the shortage. Apple, a $2 trillion company and the world's largest buyer of semiconductors spending $58 billion annually, was forced to delay the launch of its iPhone 12 by two months due to the shortage.

“Chips are everything,” said Neil Campling, media and tech analyst at Mirabaud in an interview with The Guardian.

“There is a perfect storm of supply and demand factors going on here. But basically, there is a new level of demand that can’t be kept up with, everyone is in crisis and it is getting worse.”

Automakers have been hit especially hard and found themselves at the back of the queue. Ford recently cancelled shifts at two of its car plants and said profits could be hit by as much as $2.5 billion this year as a result of the shortages. Nissan has also begun idling production at plants in the US and Mexico, and General Motors has said it could also be facing a dent in profits by as much as $2 billion.

Last month, Sony, which like other console makers has been struggling with stock shortages over the last year, said that it may miss sales targets for the new PS5 as a result of the shortages. Microsoft has said that shortages may continue until the second half of the year at least.

Also read: Apple chooses Germany for €1bn semiconductor design factory

One of the most poignant examples of the consequences of the crisis is Samsung, the world's second-largest buyer of chips after Apple, and the world's second-largest producer. The company's co-chief executive Koh Dong-jin announced late last week that the "serious imbalance" in the pecking order of who receives the limited supplies of semiconductors may lead to the postponement of the launch its new smartphone. 

"It is incredible that Samsung sells $56 billion of semiconductors to others, and consumes $36 billion of them itself, finds it may have to delay the launch of one of its own products," Campling told The Guardian.

Carmakers who cut orders for semiconductors last year when vehicles sales fell, are now finding themselves lower down the pecking order when they tried to reorder as the markets began bouncing back.

Globally, the automotive industry purchases around $37 billion of chips with the biggest players like Volkswagen and Toyota spending around $4 billion each which, when compared with the amount spent by the likes of Apple and Samsung, is relatively small change.

Also read: Automakers may have to overhaul supply chains to address chip shortage

"The worst affected have been autos because they were last to the party; if Apple is spending $56 billion a year and growing who are you going to keep supplies going to first?" added Campling.

The shortage does not look like it will end any time soon. Getting semiconductor factories up and running can take as much as two years as the process is complex and involves many stages. Manufacturers that are already in operation are currently in the process of bumping up prices for the second time in under a year.

"There is no sign of supply catching up, or demand decreasing, while prices are rising across the chain,” Campling told The Guardian.

“This will cross over to people in the street. Expect cars to cost more, phones to cost more. This year’s iPhone is not going to be cheaper than last year."

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