A glance at the global semiconductor shortage

The semiconductor industry is charged more than ever before, making over $500bn (£371.87) in collective annual sales in 2021. Demand for microchips grew 17% from 2019 to 2020, while global chip sales leaped about 25% in 2021 to a peak of $583.5bn, according to research from Garner Inc.

The shortfall of chips is estimated to have resulted in a production loss of 7.7 million vehicles last year, reports consulting firm AlixPartners. Carmaker Jaguar reported a loss of £9m, compared to a significant profit of £439m the previous year.

Cars, mobile phones, washing machines, many gadgets that have become essential require semiconductors or chips. With the coronavirus pandemic and its lockdowns, more screens and equipment in the form of video games, graphics cards and cars have become hot commodities as all eyes turn to the internet for solace from the pandemic. A report from Goldman Sachs 2021 states that the supply chain disruptions in the semiconductor industry have spillover in over 169 countries.

Demand has skyrocketed, but manufacturing plants around the world competed to reach full capacity, trying their best to meet the pressures of demand but have failed so far.

The average wait time for semiconductors globally goes beyond 25 weeks, according to Susquehanna Financial group.

The aggressive growth in demand for chips led to greater government subsidies, investment, and competition in the automobile industry. 

The semiconductor industry association expects the market to grow 8.8% in 2022.

Wallace Witkowski from Morningstar research said to meet increasing demand, chipmakers have moved to increase manufacturing, “but that has sparked concerns that the rush to build supply may overshoot demand, which happened in the boom-bust year of 2018 and is making analysts somewhat cautious going into 2022, despite reporting that the annual chip supply has already been claimed.”

Countries, companies making commitments

The US Department of Commerce warned that semiconductor company stocks had a hard time during the recent crisis, where a survey of the supply from 150 companies showed drastic drops as chipmakers struggled to keep up with the demand for electronics.

Intel plans to expand its facilities in the US. 

The Indian government published its official annual Economic Survey today for the fiscal year 2021-22 where it mentioned the shortage of semiconductors.

The survey said that electronics is considered a meta resource across the world. The fast-paced technology industry is gradually finding its place in many kinds of diversified industries, with 9,375 orders of new cars pending due to the shortage. The Indian government plans to spend $10m to attract international investment into the country in relation to the production of semiconductors.

Intel, the world’s largest semiconductor chip maker until 2021, reported a sharp decline in its income recently. Intel plans to spend $20bn to construct the world’s largest chip-making complex in Ohio.

Its rival and the first in the world in the chip-making industry is Samsung, which makes memory chips, unlike Intel’s microprocessor chips. Samsung plans to spend $17bn building a semiconductor plant in Texas. The company also expects to post a 52% leap in profit for the last quarter of 2021.

Intel lost its contract to supply chips to Apple, delayed a crucial launch and started outsourcing its chips from Taiwan Semiconductor Manufacturing Co., leading to a sharp decline in its stock and value.

Toyota cut its February production target and said the chip shortage would force it to reduce output by 150,000 units in February to about 700,000 vehicles.

Germany-based Infineon, one of the biggest suppliers of auto semiconductors, invested €1.6bn in a plant in Austria last year in reaction to demand from popular car makers in Germany, including Volkswagen and Stellantis.

The company is confident that the chip shortage should end in 2023.

The coronavirus pandemic hit the semiconductor industry with a double whammy. The lockdowns led to a massive surge in electronic devices, while the closure of international borders and restriction of movement led to heavy supply disruptions. 

As well, people turned to cryptocurrencies a lot more where chips are a major component of graphics cards, along with the rise of modern technology that also ate up chips, including artificial intelligence and machine learning.

Market-leading semiconductor stocks

Semiconductors are an integral part of modern technology used in automobiles and electrical and medical devices. The biggest stocks among chipmakers in the spotlight now are:

• Taiwan Semiconductor Manufacturing Co, the world’s largest chip-making contractor has ambitious plans for future expansion.
• Chip-making giant Intel’s CEO Patrick Gelsinger expects to create the world's largest semiconductor manufacturing space by 2025.
• Chip designer Broadcom is another popular stock with growing quarterly payouts.
• Nvidia covers chip requirements in the areas of artificial intelligence and cloud computing.
• Europe’s leading lithography company ASML that produces lithography machines that chipmakers use to produce computer chips.
• German Infineon that produces power chips also grabs attention as a leading stock.
• STMicroelectronics provides silicon technology to Tesla.

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