When Will the Global Chip Shortage End?

October 15, 2022
blog 2022 10 15
The global auto and consumer electronics industry suffered huge losses. What’s behind the chip shortage? Chip shortage and excess problems will exist for a long time.

Since 2020, global economic conditions have been in sharp decline due to the COVID-19 pandemic, a global chip shortage and falling demand for electronics, and this year’s conflict between Russia and Ukraine. According to related research reports, 170 industries worldwide are affected by the chip shortage, such as automotive, consumer electronics, home appliances, data centers, and so on. So if the chip supply chain is not in sufficient supply, it will cause a series of global economic problems.

The demand rate for chips in 2021 was 17% higher than that in 2019, but due to the shutdown of factories due to the COVID-19 pandemic, chip shipments fell far short of the demand, causing huge losses to the global auto industry.

The global auto and consumer electronics industry suffered huge losses

Last year, several car brands around the world were forced to halt production because of chip shortages. Globally, automakers halted production of 3.6 million new vehicles, resulting in direct losses of $110 billion, including $13.4 billion in Europe and $5.2 billion in North America.
The chip shortage has been particularly damaging in consumer electronics, with Apple revealing in its fourth quarter 2021 earnings report that a supply chain crisis had cut production of iPhones, iPods, and Macs by $6 billion.

consumer electronics
Consumer Electronics

What’s behind the chip shortage?

Everyone knows that there is a chip shortage, but few people know the truth, the shortage of chips does not include low-end chips, but the lack of high-end chips under 7nm.

There are two main reasons for the chip shortage:

  1. Lithography is the leading equipment in the chip manufacturing industry, Microchips are made by building up complex patterns of transistors, layer by layer, on a silicon wafer. Lithography systems are the key point to that process.
    The well-known brand is Dutch ASML Lithography, Each device needs to be built using the best technology in many countries at once, and the quantity is limited. Many of the devices have been pre-ordered by the leading manufacturers in the chip industry, but it falls far short of demand, which indirectly leads to chip shortages.
  2. The wafers that make chips are in high demand, but the production capacity is limited, leaving supplies small.
    Wafers are the raw materials used to make silicon semiconductor circuits. The shortage of wafers directly affects the output of chips, leading to an imbalance between supply and demand and affecting a series of industrial chains.
silicon wafer
Silicon Wafer

Chip shortage and excess problems will exist for a long time

According to the survey of several institutions in the market, the global chip shortage will turn around in 2023, but it may be followed by overcapacity. The market has underestimated the deterioration of chip manufacturers’ earnings caused by the chip surplus in the next 2 to 3 years. The chip overstock will focus on pure foundries like TSMC because if demand falters, the result could be overstocked of some chips and price decreases.

In addition, due to the increase in the production capacity of core chips, the whole market is still in the situation of the previous shortage of capacity, so in the short term, the core chip performance of large factories still maintains a positive trend. Qualcomm’s second-quarter revenue and net income both grew more than 40% this year, and its second-quarter earnings report for 2022 states that phone chip sales jump 56% year over year to $6.33 billion.

Although the current mobile phone chip orders have decreased, the automotive chip and advanced process chip production capacity are still short, so in the future for a period of time, chip production capacity shortage and excess problems will exist.

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