The global chip shortage is going from bad to worse. Here’s why you should care


(CNN) – On the market for a new car, smartphone or washing machine this year? A global shortage of computer chips could force you to wait a bit and pay more.

A growing number of manufacturers around the world are struggling to source semiconductors, delaying production and delivery of goods and threatening to drive up prices paid by consumers.

Several factors are at the origin of the crisis, which was initially concentrated in the automotive industry. The first is the coronavirus pandemic, which plunged the global economy into recession last year, disrupting supply chains and changing consumer buying habits. Automakers have cut back on chip orders while tech companies, whose products have been boosted by life lockdown, bought as many as they could.

Other shocks, such as US government sanctions on Chinese tech companies and extreme weather conditions, have also contributed to the supply shortage.

The most popular computer chips are neither particularly sophisticated nor expensive. But they’re must-have components used in everything from kitchen appliances to washing machines and electronic gadgets.

The shortage is going from bad to worse, stretching from cars to consumer electronics. With the bulk of chip production focused on a handful of vendors, analysts warn the crisis will likely last until 2021.

According to Goldman Sachs, 169 US industries incorporate semiconductors into their products. The bank predicts an average 20% shortfall in computer chips among affected industries, with some of the components being used to make chips in shortage until at least this fall and possibly into 2022.

To understand how the chip shortage is affecting the economy, let’s start with cars:

Auto industry hampered
The average car has between 50 and 150 tokens. They are used in a growing number of applications, including driver assistance systems and navigation control.

When the pandemic forced automakers to temporarily shut down factories last year, semiconductor makers reallocated additional production capacity to companies making smartphones, laptops and gaming devices – products in high demand by consumers confined to the home.

Then car sales rebounded faster than expected, and automakers responded by ramping up production. But they ended up in the end for the chips.

Volkswagen, Ford, Fiat Chrysler and Nissan were forced in January to adjust production and, in some cases, to idle factories due to shortages. The problem continues to disrupt the industry.

On Thursday, the BMW-owned Mini announced it was suspending production at a factory in England for three days due to the availability of semiconductor components. Ford warned on Wednesday that the chip shortage would cut production this year by about 1.1 million vehicles and cut profits by about $ 2.5 billion.

The chip shortage endangers the production of 1.3 million cars and vans worldwide in the first quarter, according to research firm IHS Markit.

IHS said a fire last month at a Japanese chip factory owned by Renesas Electronics, as well as ongoing disruptions following severe winter conditions in Texas, would make matters worse.

NXP Semiconductors, Infineon and Samsung were forced to close factories in Austin for a week in February due to a winter storm that disrupted electricity and water supplies.

“Week-long shutdowns will be felt for months,” IHS said in a recent research note.

Much of the problem: Automakers have limited options when it comes to securing additional supply.

The Taiwan Semiconductor Manufacturing Company, for example, is responsible for producing about 80% of the microcontroller units used in cars, according to a report by Bain & Co. These parts handle functions such as power windows, braking and the fog lights. TSMC will invest $ 100 billion in advanced chips over the next three years to meet growing demand.

Smartphones and devices
Consumer electronics manufacturers are also being criticized by the shortages.

Samsung told analysts in its earnings call on Thursday that it was working hard to reduce shortages in semiconductors and other key parts, which could weigh on sales of products like smartphones.

In a call with analysts on Wednesday, Apple CFO Luca Maestri said the company expects revenues to be $ 3-4 billion lower this quarter thanks to ” supply ”. This includes chip purchasing issues, which are expected to affect iPad and Mac production.

The supply shortage will hit other smartphone makers as well.

“Covid-19 is still a major consideration, but it is no longer the main bottleneck,” Ben Stanton, Canalys research director, said Thursday. “The supply of critical components, such as chipsets, has quickly become a major concern, and will hamper shipments of smartphones in the coming quarters,” he added.

Siemens, whose automation systems for power grids, buildings and trains increasingly rely on technologies that require chips, told CNN Business on Thursday that it “has been doing well so far in terms of concerns production constraints and extended delivery times “, but was closely monitoring developments.

“We continue to make every effort to mitigate the potential risks associated with potential component shortages,” he added.

Beyond cars and smartphones, computer chips are used in a range of household items, including televisions, washing machines and refrigerators. Analysts have warned these could be next on the firing line.

Prices increase?
For consumers, the shortage of chips could lead to an increase in the cost of goods.

“Even though the demand for consumer electronics and cars tends to be quite price sensitive and is likely to moderate with even modest price increases, we estimate that the reduced supply could increase prices by 1 to 3% in the relevant categories, ”Goldman Sachs analysts said. This could temporarily spike inflation later this year, they added.

Chip constraints are already driving up vehicle prices in the United States, as dealerships only have a fraction of typical inventory levels. The average price of new cars climbed to $ 37,200 in the first quarter, an 8.4% increase from the same period a year ago, according to JD Power.

About half of car buyers pay less than 5% of the sticker price, some pay more than ask.

The pressure on supply chains has even caught the attention of US President Joe Biden, who in February ordered a review of products used by Americans vulnerable to disruption. Biden said this could lead to increased domestic production of some products.

Intel, meanwhile, is in talks with companies that design chips for automakers about making these chips at its factories. If successful, Intel could produce chips within six to nine months, according to CEO Pat Gelsinger.

In the meantime, expect the disruption to continue.

– Julia Horowitz, Chris Isidore and Will Godley contributed reporting.

Correction: A previous version of this article incorrectly stated that Siemens manufactures washing machines and refrigerators. It sold the company in 2015 to Bosch, which continues to produce home appliances under the Siemens brand.

CNN wire
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