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With computer technology playing a more important role in everyday life, the demand for the semiconductors that power it has steadily increased. Meeting this need is generally a smooth process, but the pandemic has disrupted it. Now, manufacturers of everything from video game consoles to cars are facing a shortage of microchips.
General Motors (ticker: GM) was the latest company to reveal the extent of the damage. Management told investors early Wednesday that it expected an impact of $ 1.5-2 billion this year on an adjusted earnings measure. The company had to stop manufacturing at three factories in Canada, Mexico and the United States until mid-March, she said on Tuesday.
“GM’s plan is to harness all available semiconductors to build and ship our most popular and demanded products, including trucks, SUVs and full-size Corvettes for our customers,” the company said. .
GM is not the only major automaker affected.
Ford engine
(F) stopped the production of at least one factory;
Volkswagen
and its subsidiary Audi have also reduced their production.
Modern cars and trucks contain dozens of chips, a number that will only increase as more cars feature driver assistance technology or are built with electric motors. By 2022, Deloitte estimates, each car will have around $ 600 in tokens, roughly double the $ 312 in 2013.
This change, along with the pandemic, are the main drivers of the current crisis. As the coronavirus spread last year, sales of new cars plummeted. Automakers thought the recovery could take years, so they dug deep into their inventory instead of buying new chips,
Analog devices
(ADI) Vincent Roche said Barron’s last month.
One specific bottleneck appears to be a type of semiconductor called microcontrollers – basically very small computers – which are used for things like engine control systems, according to Pierre Ferragu, analyst at New Street Research.
Semiconductor manufacturing in Taiwan
(TSM), one of the world’s largest chipmakers, and other executives have confirmed the microcontroller issue.
Unlike some other products, it can take time to increase flea production. The Semiconductor Industry Association recently said that it normally takes 26 weeks from when an automaker orders a chip to when it is delivered. For more advanced microprocessors, manufacturing capability sometimes needs to be guaranteed years in advance.
In addition, Ferragu wrote, trade tensions between the United States and China have prompted some chipmakers to move away from manufacturing in China.
Semiconductor Manufacturing International
in Taiwan Semi. Such changes interrupt manufacturing as chip designers adjust their supply chains and manufacturing moves from factory to factory.
As to the duration of the shortage, says Ferragu, there is no easy solution. Supply constraints have been mentioned across the board as semiconductor companies have released their financial results in recent weeks.
And solving the shortage could bring its own problems. Companies supplying chips to the auto industry have some idea of demand growth for the first quarter, and the candid among them warn inventory can build up as automakers place aggressive orders , wrote Ferragu. This creates the potential for overabundance.
Always,
ON Semiconductor
(ON) The CEO of Hassane El-Khoury said Barron’s last week, at least for now, there is no immediate concern about an inventory build-up. As an example, El-Khoury said, if the chips he ships to a distributor are not sent to a manufacturer within a week, his company will redirect them to another customer, who will 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, the shortage is likely to continue for at least the first half of the year, potentially longer.
Advanced Micro Peripherals (AMD)
CEO Lisa Su said supply shortages are likely to continue until the second half of the year. This suggests video game consoles from both
Sony
and
Microsoft
Video game consoles could remain scarce in 2021.
Ferragu wrote in a research note that unit sales of smartphones are still expected to double, despite supply constraints. Still, his team is closely monitoring the increase in chip manufacturing capacity at companies such as Taiwan Semi,
Samsung electronics,
and GlobalFoundries.
Since companies manufacture various types of semiconductors, stocks tend to react differently to supply issues. For companies such as Micron Technology (MU), which manufactures memory, a tighter supply usually correlates with rising prices, which adds to the profit.
Investors, on the other hand, seem to view the shortage as a positive factor. The PHLX Semiconductor Index has gained 41% in the past six months, while the Nasdaq Composite Index has gained 28%.
Write to Max A. Cherney at [email protected]
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