The global chip shortage is worrisome

London (CNN) – Are you planning to buy a new car, smartphone or washing machine this year? The global shortage of computer chips may push you to wait and pay more.

A growing number of manufacturers around the world are struggling to obtain semiconductors, which is delaying the production and delivery of products and threatening to raise the prices paid by consumers.

Several factors are driving the crisis, which was initially centered in the auto industry. The first is the Coronavirus pandemic, which plunged the global economy into a recession last year, disrupted supply chains and changed consumers’ buying habits. Carmakers have reduced orders for chips, while tech companies whose products have been favored by the lockdown measures have acquired as many of them as possible.

Other conditions, such as US government sanctions on Chinese technology companies and severe weather, have also contributed to supply shortages.

The most common computer chips are not particularly complicated or expensive. But they are indispensable components used in everything from kitchen appliances to washing machines and electronics.

Shortages are turning from bad to worse, and it’s spreading from cars to consumer electronics. With most of the chip production concentrated in a handful of suppliers, analysts caution that the shortfall is likely to continue throughout 2021.

According to Goldman Sachs, 169 US industries incorporate semiconductors into their products. The bank expects an average 20% deficit in computer chips among the affected industries, and some of the components used to make the chips will be unavailable at least until this fall and possibly until 2022.

To understand how the lack of chips affects the economy, let’s start with cars:

The auto industry is suffering

The average car has between 50 and 150 chipsets. They are used in a growing number of applications, such as driver assistance and navigation control systems.

When the pandemic forced automakers to shut down their factories temporarily last year, semiconductor manufacturers reallocated excess production capacity to companies that make smartphones, laptops, and game consoles – products that are badly needed by consumers and cannot leave the home.

Then auto sales recovered faster than expected and automakers responded by increasing production. But they were at the end of the line of chips.

Volkswagen, Ford, Fiat Chrysler and Nissan in January had to adjust production and, in some cases, shut down factories due to shortages. The problem continues to plague the industry.

BMW-owned Mini said on Thursday it will suspend production at a plant in England for three days due to the availability of semiconductor components. Ford warned Wednesday that a chip shortage would cut production this year by about 1.1 million cars and cut profits by about $ 2.5 billion.

A chip shortage put production at risk of 1.3 million cars and trucks worldwide in the first quarter, according to research firm IHS Markit.

IHS said the fire that broke out last month at a Japanese chip plant owned by Renesas Electronics, as well as the disruptions in the wake of the severe winter storm in Texas, will only make matters worse.

NXP Semiconductors, Infineon and Samsung were forced to shut down their Austin plants for a week in February due to a winter storm that disrupted power and water supplies.

“The lockdown for a week will suffer for months,” the IHS said in a recent research note.

Big part of the problem: Automakers have limited options when it comes to securing additional supplies.

Taiwan Semiconductor Manufacturing Company, for example, is responsible for producing about 80% of the microcontrollers used in cars, according to a Bain & Co. report. These parts manage functions such as power windows, brakes and headlights. TSMC is investing $ 100 billion in advanced chips over the next three years to meet the growing demand.

Smart phones and home appliances

The shortage is also affecting consumer electronics manufacturers.

Samsung told analysts on its earnings call on Thursday that it is working hard to reduce shortages of semiconductors and other key parts, which could affect sales of products such as smartphones.

In a call with analysts on Wednesday, Apple Chief Financial Officer Luca Maestri said the company expects revenue to drop $ 3 to $ 4 billion from this quarter due to “supply constraints.” This includes issues with sourcing chips, which are expected to affect iPad and Mac production.

The supply shortage will also affect other smartphone manufacturers.

“Covid-19 is still an important consideration, but it is no longer the main obstacle,” said Canalys Research Director Ben Stanton on Thursday. “The supply of vital components, such as chips, is quickly becoming a major concern, and it will make it difficult to charge smartphones in the coming quarters,” he added.

Unlike cars and smartphones, computer chips are used in a whole host of household items.

Siemens, which makes washing machines and refrigerators, told CNN Business on Thursday that it is “doing well so far with production restrictions and long delivery times”, but is monitoring developments closely.
“We continue to do our best to mitigate the risk of potential component shortages,” he added.

Are prices going up?

For consumers, a lack of chips could mean higher product prices.

“Although demand for consumer electronics and cars tends to be very price sensitive and likely to be moderate with modest price increases, we estimate that supply cuts could increase prices by between 1% and 1%,” said Goldman. They add that this may raise inflation temporarily towards the end of the year.

The limited supply has already pushed up auto prices in the US, with dealers holding only a fraction of their regular inventory. The average price for new cars rose to $ 37,200 in the first quarter, an increase of 8.4% over the same period last year, according to JD Power.

About half of car buyers pay within 5% of the base price, and some pay more than what they ask for.

The pressure on supply chains caught the attention of US President Joe Biden, who in February ordered a review of products used by disruptive Americans. Biden said this could lead to an increase in domestic production of some commodities.

Intel, for its part, is in talks with companies that design chips for automakers to make them in their factories. If successful, Intel could produce chips within six to nine months, according to CEO Pat Gelsinger.

In the meantime, we hope the turmoil continues.

– Julia Horowitz, Chris Isidore and Will Goodley contributed to the reporting.