Chip shortage spirals beyond cars to phones, consoles

Auto and electronics makers that cut back drastically in the early days of the outbreak are now rushing to re-up orders, only to get turned away because chipmakers are stretched to the max supplying smartphone giants like Apple Inc.

TAIPEI: The first hints of trouble emerged in the spring of 2020. The world was in the early throes of a mysterious pandemic, which first obliterated demand then super-charged internet and mobile computing when economies regained their footing.

That about-face - in a span of months - laid the seeds for potentially the most serious shortage in years of the semiconductors that lie at the heart of everything from smartphones to cars and TVs.

Auto and electronics makers that cut back drastically in the early days of the outbreak are now rushing to re-up orders, only to get turned away because chipmakers are stretched to the max supplying smartphone giants like Apple Inc.

This week, Qualcomm Inc’s Cristiano Amon, head of the world’s largest mobile chipmaker, flagged shortages “across the board, ” citing the industry’s reliance on just a handful of players in Asia.

Amon joined a growing chorus of industry leaders warning in recent weeks they can’t get enough chips to make their products. Carmakers appear in direst straits and have spurred the US and German governments to come to their aid - General Motors Co this week was forced to mothball three North American plants and Ford Motor Co is bracing for a 20% drop in near-term output. But more industries have lately copped to shortages, emphasising how Covid-19 and a boom in a new breed of 5G-ready smartphones like the iPhone 12 is exacerbating a shortage of capacity plaguing the entire consumer industry. Chip shortages are expected to wipe out US$61bil of sales for automakers alone, but the hit to the much larger electronics industry - while tough to quantify at this early stage - could be far larger.

Apple, a major Qualcomm customer, said recently that sales of some new high-end iPhones were hemmed in by a shortage of components. Europe’s NXP Semiconductors NV and Infineon Technologies AG - whose roles near the top of the supply chain grant them visibility over global chip flows - have both indicated the constraints are no longer confined to autos. And Sony Corp said Wednesday it might be unable to fully sate demand for its new gaming console in 2021 because of production bottlenecks.

“The virus pandemic, social distancing in factories, and soaring competition from tablets, laptops and electric cars are causing some of the toughest conditions for smartphone component supply in many years, ” said Neil Mawston, an analyst with Strategy Analytics. He estimates prices for key smartphone components including chipsets and displays have risen as much as 15% in the past three to six months.

PC makers were among the first to hint, in the spring of 2020, at an impending crunch, a warning echoed by Lenovo Group Ltd recently. At the heart of the crisis sits Taiwan and its largest company Taiwan Semiconductor Manufacturing Co, the chipmaker of choice to the world’s technology and auto giants. It spent billions in past years ensuring it remains at the forefront of semiconductor production technology - a costly exercise that’s both paid off and also thrust it into the middle of a global geopolitical dogfight.

On Friday, Qualcomm and Corning Inc joined Biden administration officials to discuss the gathering storm with their Taiwanese counterparts and the island’s top industry representatives including TSMC. Both sides repeatedly stressed their interdependence, Taiwan’s Minister of Economic Affairs Wang Mei-Hua told reporters. The presence of several senior US officials and the Semiconductor Industry Association - which represents America’s biggest chipmakers - emphasised the urgency of the situation.

The current crisis stems from several factors that converged. Like every chip designer on the planet, Qualcomm outsources production to Asian companies, foremost among which are TSMC and Samsung. ─ Bloomberg