By Geoffrey Smith
Investment.com – The semiconductor is considered ‘new oil’ – an essential commodity (or sale of goods) embedded in almost every manufactured product. So when the factories are running at full capacity, that’s a problem – a big deal.
The global semiconductor shortage is likely to get worse before it gets better: the world’s largest contracted silicon chip maker said last week that the shortage will come in 2022, forced manufacturers and customers around the world to have a headache for months about whether to grind their teeth and pay higher prices, or accept longer delivery times.
The problem is no one. Even Apple (NASDAQ :), with its enormous purchasing power, is said to be reducing output, though for now, at least, its flagship phone is unaffected. Rival Samsung (KS 🙂 – a chip-making powerhouse – on the contrary, has warned that it is new until 2022.
In the automotive sector, General Motors (NYSE 🙂 and Ford are present in the US, while Volkswagen CEO (DE 🙂 Diess said last month that VW lost more than 100,000 units of output due to a shortage. deficit.
The causes of all this turmoil are no mystery: the Covid-19 pandemic caused a major shift in consumer spending patterns leading to an increase in demand for some. categories of goods – especially consumer electronics – from an industry that cannot respond quickly to such an increase (new factories are extremely expensive and take a long time to build). That has left chip buyers with low specs, especially the auto industry, looking backwards.
Worse still, a bizarre series of events – in Japan, a complicated water-intensive manufacturing process – has disrupted chip supplies even more.
Surely things could only get better? Yes, yes and no. Weather and accidents are clearly short-term noise. Even factors that have affected the broader pandemic may be temporary, for the most part. At some stage, the vaccinated world will regain the freedom to hang out and party, which will leave less money left for upgrading PCs, TVs, and phones.
Such disruptions, however, are hurting an industry that has already faced long-term turmoil, due to competition between the US and China. The importance of semiconductors for advanced communications and defense applications has prompted the United States to slowly tighten restrictions on chip sales to Chinese companies (especially Huawei) and strangle chip trade. global in the process.
Analysts at London-based research firm TS Lombard predict that competition will eventually lead to a clear split in the world semiconductor market, as China is forced to develop its industry. to match the industry of the US and its allies. This will force the industry to increase wholesale production capacity: about 83% of global foundry capacity is in Taiwan and South Korea, under the rockets of the People’s Liberation Army and its allies. North Korea.
The industry has responded: Intel (NASDAQ :), under the new management of Pat Gelsinger, has decided. The Taiwan semiconductor maker last week announced a $ 100 billion commitment to capacity expansion over the next three years. Some of them will also be moved to build factories in Arizona.
Arguably, secular trends require an increase in capacity in all cases, and this is just another long-term trend in which the pandemic has intensified.
“As the world becomes more interconnected, more automated and greener, every unit of GDP growth will contain higher levels of semiconductors,” points out Dr. Lombard’s Rory Green.
However, building new capacity is extremely costly – and the growth potential of an indigenous Chinese industry creates an uncertain long-term supply-demand balance. Ask any steel producer or refiner what happens when China – according to the government’s insistence – builds more capacity than its economy can actually absorb. The chip that could kill China’s business cycle or overproduction is yet to be designed.
The worst may be over soon for chip buyers, but the volatility in global markets for ‘new oil’ is here to stay.