Breaking down the semiconductor shortage hitting several industries

Silicon chips are the lifeblood of the tech-obsessed world we live in, but today they’re in short supply.

Demand for these chips, or semiconductors, has soared during the coronavirus pandemic as people snapped up games consoles, laptops and TVs to help get through lockdowns. Now, many of these products — including certain Chromebook laptops and next-generation consoles like the Xbox Series X and the PlayStation 5 — are sold out, or subject to lengthy shipping times.

It’s just one of a number of factors that has driven demand for semiconductors, but as supply struggles to keep up, it’s the chip-reliant car industry that has been hit especially hard.

“We have seen in the short term, the automotive industry has been very adversely affected,” Bryce Johnstone, director of automotive segment marketing at chip designer Imagination Technologies, told CNBC via email. “This stems from their just-in-time production methodology and their incredibly complicated supply chains.”

Carmakers uses semiconductors in everything from power steering and brake sensors, to entertainment systems and parking cameras. The smarter cars get, the more chips they use.

“If the chip that powers the in-car dials or automatic braking are delayed, then so will the rest of the vehicle,” said Johnstone.

Closed car plants

U.S. car giant General Motors announced last Wednesday that it is shutting three plants and slowing production at a fourth due to the semiconductor shortage. The Detroit car manufacturer said it could miss its 2021 targets as a result.

“Despite our mitigation efforts, the semiconductor shortage will impact GM production in 2021,” a company spokesman said in a statement.

“Semiconductor supply for the global auto industry remains very fluid,” they added. “Our supply chain organization is working closely with our supply base to find solutions for our suppliers’ semiconductor requirements and to mitigate impacts on GM.”

Several other car manufacturers have also put production on hold in recent weeks. Honda U.K.’s main plant in Swindon was shut down for several days last month due to a chip shortage, for example. Elsewhere, Ford and Volkswagen have also shut plants or cut production while they wait for supplies to pick up.

Ford said in January that it was shutting a factory in Germany for a month, while Volkswagen said in December it will make 100,000 fewer cars this quarter as a result of the shortage.

Speaking about the chip shortage on a Davos panel on Jan. 25, VW CEO Herbert Diess said: “We have to make sure that the markets and supply chains remain intact.”

Swings in demand; long lead times

Falan Yinug, director of industry statistics and economic policy at the Semiconductor Industry Association, says the chip shortage in the automotive industry is largely the result of substantial swings in demand due to the pandemic and the increased use of semiconductors in advanced vehicles.

“The events leading to the current auto chip shortage began during the second quarter of 2020, when automakers understandably reduced production and chip purchases as the virus spread across the globe,” Yinug wrote in a blog last Thursday.

At the same time, chipmakers saw a pickup in demand for semiconductors used to support remote healthcare, work-at-home, and virtual learning, which were required during the pandemic, according to Yinug.

“In the months that followed, demand for automotive semiconductors rallied much more quickly than most anticipated,” Yinug said.

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[seanoleary]

He didn’t even answer her question about the half year timing. He just started talking about market impacts. Well that’s awkward. Plus this segment didn’t even touch on why we’re seeing this shortage aside from saying “it takes a long time to make a chip and there are a lot of products that need chips”.

[JulieHan]

TSM and UMC are the top 2 semiconductor companies in Taiwan which supply most of the chips to the big companies, like Apple, Qualcomm, AMD, Nvidia....etc

[stanley]

I really don’t think it is production line but supply shipment delays. We used to have triple the amount of passenger flights in the air. Most of these passenger flights also carries huge shipments underneath along with passengers.

So we have 2/3 of flights gone or heavily restricted, supplies for these chips are severely limited. And we see this impacting across multiple sectors not limited to just chip supplies

[boycottnok]

Shameless Renesas will still not learn still focusing on design instead of fabrication.

[brian]

Good news for the Dutch company that makes 90% of the world's chips. Their order books are full, full, full, and they are expanding as fast as they can. Company is ASML in the south of the Netherlands.

[DrWil-kmzh]

Why the rush, when most car companies don't manufacture reliable cars anymore with quality issues!.

[enjoylifeandkeepdancing]

UMC-- Tap into these chip manufacturing companies to manage the demand.

[EJIHI]

Ok, why is this happening again? Was about to build a new gaming PC. Motherboards are out of stock, GPU's are out of stock.

[lorenzoo]

Lots of thing have gone into chip shortage under investment in foundry's, Architecture diversity, incompetence, competence and other things I might be missing

[tenwest]

Who the hell is gonna home base their company here with the new tax rates... oh wait the gov...

[tiger-fglc]

Ok let me tell you. firstly car makers made a false forecast. They have took their orders back since COVID became a real issue because they thought it would bring low demand for new cars for a while but as we see market has recovered like V-shape but unfortunately they couldn't get their orders back. Even order is placed right now it needs 26 weeks as the video explained. Plus chip makers like TSMC, UMC do not like manufacturing these automotive chips because it's not as much profitable as the ones for consumer products.

[Gracinda]

She's got it. She realised that this will cause the next stock market crash. Give it a year.

[sentient]

US pays attention to this when they can't make cars.

[goranhikl]

This happens when China got everybody by the horns and the funny part is we did it to ourselves.

[stridentlamb]

That’s why they need Nano Demension to prevent this, ticker NNDM

[JulieHan]

Why not USA Wall Street professionals support the best semiconductor foreign companies, like TSM first in stock market? TSM is so fundamentally important for so many big companies, like Apple, Qualcomm, But why only Ark Cathie Wood smartly bought into TSM?

[juusokuikka]

This is great news for Intel who's had less problems than TSMC & co. INTC to the moon 🚀🚀🚀

[dedskin]

So no reason for shortage, nothing changed . Do you ppl get this, nothing changed yet there is a shortage . Chips are printed literally like money, you cant have shortage of that . unless its designed shortage to boost the price, and that is what it is . You go on being stupid ignore what i say eventually you will get it .

[TomTom-cmoq]

She's totally high, right? It's not just me?

[brutallyhonest]

YES!! DOMESTIC MADE IN USA IS ALWAYS BEST