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Cars and trucks contain a growing number of chips.
Dreamstime
As computer-based technology plays a more important role in everyday life, the demand for the semiconductors that power it has steadily increased. Responding to this need is usually a smooth process, but the pandemic has altered it. Now, manufacturers of everything from video game consoles to cars, are facing a shortage of microchips.
General Motors (ticker: GM) was the last company to reveal the extent of the damage. Management told investors early Wednesday that it expected an impact of $ 1.5 billion to $ 2 billion this year, with a measure of adjusted profit. The company has had to close manufacturing at three facilities in Canada, Mexico and the United States until mid-March, it said Tuesday.
“GM’s plan is to take advantage of all available semiconductors to build and ship our most popular and most sought-after products, including full-size trucks, SUVs and Corvettes for our customers,” the company said.
GM is not the only major automaker affected.
Ford engine
(F) has stopped production of at least one plant;
Volkswagen
and its subsidiary Audi have also reduced production.
Modern cars and trucks contain dozens of chips, a number that will only increase as more vehicles are equipped with assisted driving technology or built with electric motors. In 2022, according to Deloitte, each car will have chips worth about $ 600, about double the $ 312 of 2013.
This change, plus the pandemic, are the main factors behind the current crisis. As the coronavirus spread last year, new car sales fell. Car manufacturers thought the recovery could take years, so they delved deeper into their inventories instead of buying new chips,
Analog devices
Said Vincent Roche, CEO (ADI) De Barron last month.
According to New Street Research analyst Pierre Ferragu, a specific bottleneck appears to be a type of semiconductor called microcontrollers, essentially very small computers, for things like motor control systems.
Taiwan semiconductor manufacturing
(TSM), one of the world’s largest chip makers, and other executives have confirmed the microcontroller problem.
Unlike some other products, increasing chip production can take a long time. The Semiconductor Industry Association recently said it usually takes 26 weeks for an auto company to order a chip until it is delivered. For more advanced microprocessors, it is sometimes necessary to ensure manufacturing capacity years in advance.
In addition, Ferragu wrote, trade tensions between the United States and China caused some chip makers to change manufacturing from China.
Semiconductor Manufacturing International
and Taiwan Semi. These changes disrupt manufacturing as chip designers adjust their supply chains and manufacturing moves from one factory to another.
As for how long the shortage will last, Ferragu says, there is no easy solution. Supply constraints were widely mentioned as semiconductor companies reported their financial results in recent weeks.
And resolving the shortage could lead to problems of its own. Companies that supply chips to the auto industry have an idea of how demand is expanding during the first quarter, and candidates warn that inventory could pile up as auto companies order aggressively, he wrote. Ferragu. This creates the potential for excess.
However,
ON Semiconductor
(ON), said CEO Hassane El-Khoury De Barron last week that at least for now there is no immediate concern about inventory buildup. As an example, El-Khoury said that if the tokens he sends to a distributor are not shipped to a manufacturer within a week, his company will redirect them to another customer, who would want them immediately.
“I’m going to have the conversation with them because I have another end customer who would like it today,” he said.
For other chip-dependent industries, shortages are likely to continue for at least the first half of the year, potentially more.
Advanced Micro Devices (AMD)
Executive director Lisa Su said the shortage is likely to continue until the second half of the year. This suggests video game consoles from both
Sony
i
Microsoft
video game consoles could remain scarce in 2021.
Ferragu wrote in a research note that sales of smartphone units are expected to double, despite supply constraints. However, his team is closely monitoring increases in chip manufacturing capacity at companies such as Taiwan Semi,
Samsung Electronics,
and GlobalFoundries.
Because companies manufacture various types of semiconductors, stocks tend to react differently to supply problems. For companies like Micron Technology, (MU) that generates memory, a tighter supply is usually correlated with rising prices, which increases profit.
Meanwhile, investors seem to see the shortage as a positive factor. The PHLX Semiconductor index has advanced 41% in the last six months, while the Nasdaq Composite gained 28%.
Write to Max A. Cherney at [email protected]