Global Chip Shortage Is Not Over
The COVID-19 pandemic and the resulting shock to the world economy have led to a surge in demand for work-from-home technologies such as PCs, tablets, and webcams. This has caused a shortage in chips, which not only impacts CPUs for laptops but also the vast quantities of chips needed to produce a wide range of products, including dishwashers, baby products, and more.
The shortage of chips has extended beyond remote work and school needs to home entertainment products like graphics cards for tablets, game consoles, TVs, and gaming PCs, all of which are being bought in record numbers by people staying at home. The number of inventories held by chip consumers such as automakers and medical device makers has also fallen from a 40-day supply in 2019 to less than five days in 2021.
Furthermore, this shortage of chips may risk closing manufacturing plants if natural disasters, the COVID-19 outbreak, or political instability disrupts semiconductor factories abroad for just a few weeks. Median buyer demand for chips in 2021 is 17% higher than in 2019, and chip shortages continue in 2022. Intel CEO Pat Gelsinger said chip demand surged 20% year over year, supply chain disruptions created a huge gap, and that explosive demand continued. Other tech CEOs and bigwigs predict that this severely skewed supply-demand balance will not be fully corrected until 2023.
The ongoing chip shortage has disrupted supply chains, adversely affecting the smartphone market. As a result of component shortages, there has been a 6% global decline in smartphone shipments in Q3 2021, according to Canalys. Moreover, the number of new phone models launching in H1 2021 has fallen 18% YoY to 310 units, according to Counterpoint.
Apple also slashed its 2021 iPhone 13 production target by 10 million units in response to the chip shortage. The impact of the chip shortage on the mobile industry became even more evident in China, where the number of smartphones shipped in February 2022 fell by nearly a third. Shipments in February 2022 fell 31.8% YoY to 14.5 million, down from 21.3 million. That is less than half of the 32.4 million shipped in February 2019 according to the government-backed China Academy of Information and Communications Technology.
In the second quarter of 2022, global smartphone shipments fell by 9% YoY, further highlighting the impact of the chip shortage on the smartphone market.
Intel, one of the world's largest chipmakers, recently announced that its sales in Q1 2022 fell by nearly 7% year-on-year to $18.4 billion, which was less than market expectations. The revenue of Intel′s client computing unit, which includes its PC chip business, was 9.29 billion in the quarter, down 13% from a year earlier, and below analysts' expectations of $9.42 billion. Additionally, research firm Gartner estimated that PC shipments fell by 6.8% during the quarter.
The chip shortage is expected to have the most significant impact on the automotive industry, with many vehicles requiring thousands of semiconductors to control safety functions, electrical and powertrains, infotainment, and more. Despite high consumer demand, automakers are expected to produce 1.7 million fewer cars in 2021 than in 2019.
New data shows that the global auto market is still severely impacted by semiconductor shortages and pandemic restrictions in 2022. According to the China Passenger Car Association, retail car sales rose in May compared with April but were still down 16% from a year earlier. As a result, the association has called on the government to step up support for the auto industry. The sales in China, Europe, and the US remain sluggish compared to last year.
In Europe, new car sales dropped by 20%, while electric car sales fell by 1.4%, according to automotive consultancy JATO. In the US, total sales fell by 21% YoY, with General Motors reporting a 15% drop in sales. The chip shortage prompted the automaker to build 95,000 cars without any parts. Similarly, Volkswagen, Europe's largest automaker, said it had to cut about 800,000 vehicles in Q3 2021, roughly 35% less than the same period in 2020 due to supply bottlenecks in semiconductor chips.
Data collected by CouponBirds revealed that Toyota's sales fell by 19% in the first half of 2022 and 18% in June. Sales at Stellantis (formerly Fiat Chrysler) fell by 16%. Honda Civic sales dropped by 54% in the first half, while Toyota Corolla compact car sales decreased by 25% from January to June. The chip shortage has also pushed up the price of new cars.
The average price of new cars has been consistently hitting record highs throughout 2021, reaching $46,036 in November, representing a 17.5% increase from the same period last year. These high prices are due to various factors, including the global chip shortage, increased demand for electronic products, and supply chain disruptions.
There are three main reasons for the global computer chip shortage. Firstly, the COVID-19 pandemic caused shutdowns in factories worldwide, disrupting production levels. At the same time, many people working from home increased their demand for electronic products for entertainment, leading to a surge in demand for consumer electronics. Such demand could not be met by the factories, leading to shortages.
Secondly, the pandemic has caused extensive disruptions in global supply chains, leading to a shortage of facilities and factories. Shipping ports that closed early in the pandemic backlog had cargo waiting to be shipped when they reopened. However, supply chains are yet to recover, while labor shortages have aggravated the situation.
Lastly, the automotive industry is one of the most affected sectors, as automakers had to cancel orders for new chips at the start of the pandemic. The expected decline in demand for new cars led to the companies' inability to maintain normal production schedules, further worsening the situation. As such, there is growing anticipation that the shortage of computer chips in the automobile industry will persist.
