Qwick Takes: The global chip shortage
This week, Talking Biz News Deputy Editor Erica Thompson reached out to Qwoted’s community of experts to inquire about the implications of the global microchip shortage that is already leading to car factory closures and warnings of consumer product shortages.
Check out some of the top commentary:
Douglas Kent, Executive Vice President of Strategy and Alliances at Association for Supply Chain Management:
All indications suggest that the chip shortage will continue throughout 2021 and into 2022 as the elevated levels of demand are not being met with an equal capability to supply. This equates to good news if you are chip maker or semiconductor equipment manufacture. However, it’s bad news if you are dependent on this critical component as undoubtedly the global semiconductor shortage will continue to impact revenue for automotive, consumer electronics manufacturers and other industry sectors who will continue to face an allocated supply.
The on/off switch is not so easy for the semiconductor sector as the cycle time for production from wafer fab to packaged product is months in most instances. Adding additional capacities for such clean-room like facilities necessary to manufacturer semis takes 1-2 years from concept to completion. Therefore, if demand continues on the current trajectory, shortages may continue into 2023. Judging by the announced investments of many companies in this ecosystem, the chip demand is expected to continue and accelerate.
Frank Kenney, Director of Market Strategy at Cleo:
While the costs and complexity of logistics have increased, the huge expense of R&D around companies ‘building their own chips’ will keep it cost prohibitive. While companies could alternatively source from other suppliers, they tend to still be based in Asia and are dependent on shipping and air lanes, which are still subject to bottlenecks. Additionally, container production is still an issue. They aren’t making enough new containers to match demand, so there’s a marked lack of space.
Further there are dock operation delays (a result of limited man power and social distancing requirements) which is hampering speed & efficiency. Such shortages and delays will be remedied as distribution of the COVID vaccine continues and social distancing requirements are reduced. But given their impact, companies that depend on semiconductor chips, and likewise their end customers, need to reset expectations.
Jim Shepherd, Enterprise Software and Next Generation Manufacturing Advisor:
Things could get significantly worse because demand for semiconductors is growing across multiple industries and It will require several years and billions of dollars in capital to significantly increase manufacturing capacity. The high-profile shortages in the auto industry were driven by pandemic disruptions and subsequent poor supply chain planning.
I expect to see some relief from that over the next 3 – 4 months because we are not dealing with a huge increase in the number of cars being produced– just a forecasting and procurement miscalculation. Part of the response problem is that the lead-time to make chips is often 4 – 6 months. Longer term, the demand for semiconductors in motor vehicles will continue to grow and will add to the growing demand and supply imbalance in the semiconductor business.
It’s both unsurprising and perplexing how disruption to supply chains on the other side of the world can cause severe economic repercussions here. In this particular case, it happens to be the global chip shortage. In short, most of the 8-inch chip manufacturing plants in the world are owned and operated by Asian firms. This concentration of production lines means that it has resulted in these firms struggling to keep their production quotas up with the demand.
For now, it seems more and more likely that this problem won’t be going away anytime soon. Foxconn has already warned that its own internal shortage issues won’t be solved until late 2022 while Gogo’s planned 5G network launch has been stalled due to chip shortage. Nvidia has had to repurpose its older RTX 2060 and GTX 1050 Ti GPUs to deal with mounting demand and dwindling supply, Ford has had to close down factories manufacturing its most profitable truck, the F-150 because of the shortage.