Global chip shortage is starting to hit the smartphone industry

A global shortage of computer chips has impacted everything from automobiles to video game consoles. And smartphones seem to be next on the list.

Semiconductors have been in short supply this year, for a number of reasons, including plant closures resulting from the Covid-19 pandemic and increased demand for consumer electronics.

Automakers have been hit particularly hard by the shortage, with companies like General Motors and Ford cutting or even stopping production of some vehicles.

Video game consoles are also affected, with gamers struggling to get their hands on the new Microsoft Xbox Series X and Sony PlayStation 5 systems.

Smartphones have so far been mostly protected from fallout, thanks to manufacturers like Apple and Samsung stockpiling critical components.

“The auto industry is not operating at the same pace as the smartphone industry,” Ben Wood, chief analyst at CCS Insight, told CNBC. “They saw the problems slower than the smartphone guys.”

Car makers rely on bigger, older chips while phone makers use the latest processors, Wood said. Smartphones are also sold in much larger volumes than vehicles, making them a preferred customer for suppliers.

Meanwhile, “smartphone companies haven’t lowered their demand for chips like the auto industry did when they expected demand for cars to drop” at the start of the pandemic, said at CNBC Syed Alam, Global Head of Semiconductors at Accenture.

“In fact, smartphone makers have benefited from the extra capacity left by auto companies, which has led the auto industry to experience a shortage of chips when demand for cars has grown faster than expected,” he said. he adds.

However, mobile makers are now starting to feel the impact of the global chip shortage.

“Now that the auto industry and others are catching up and starting to recoup capacity they had given up, there is fierce competition for semiconductor supply,” Alam added. “This created supply pressure for smartphone chips.”

Demand for smartphones declined in 2020 as the coronavirus pandemic raged, with sales down 12.5% ​​according to Gartner. However, that demand has picked up quickly this year, as several countries lift their Covid lockdown restrictions. Gartner says global smartphone sales grew 26% in the first quarter.

Apple CEO Tim Cook on Tuesday warned that silicon supply constraints would affect sales of the iPhone as well as other products like the iPad.

The shortages are not in the high-powered processors Apple makes for its devices, but in chips for day-to-day functions such as powering mobile screens and audio decoding, Cook said.

“Although Apple is one of the ‘big dogs’ that receives top priority from chipmakers, it is vulnerable to silicon shortages like everyone else,” Glenn O’Donnell, vice president and research director of the analyst firm Forrester.

“While everyone’s focus is on processors (the high end of the chips), every device (including an iPhone) has a lot more of them and without those supporting chips the phone is almost useless.”

Yet Apple “has proven remarkably resilient so far throughout the pandemic,” said Wood of CCS Insight. “This is a testament to the importance it places on the supply chain.”

Smaller manufacturers like China’s Lenovo and TCL, and Finland’s HMD Global, are likely to have supply issues, Wood added.

HMD, which launches new Nokia smartphones this summer, has warned that the semiconductor shortage could prove difficult for makers of smaller devices.

“We see that there is definitely an overall tension” in the supply chain, Florian Seiche, CEO of HMD, told CNBC. “We might see some imbalance in the market,” he said, adding that the demand for low-end models is quite high.

Like Apple, Samsung benefits from its size and bargaining power. However, analysts say the company is not out of the woods just yet.

“Samsung appears to be the most impacted” in the first half of 2021, Dale Gai, semiconductor analyst at Counterpoint Research, told CNBC.

The South Korean electronics giant was hit by a month-long shutdown of its semiconductor manufacturing plant in Austin, Texas, earlier this year after a snowstorm led to power outages. running. Meanwhile, Samsung factories in Vietnam have suspended operations after detecting cases of the coronavirus.

In March, the company said there was a serious imbalance between supply and demand for chips in the IT industry, and that it could skip the launch of its next Galaxy Note phone.

Samsung said on Thursday it saw second quarter profits rise 54% as chip prices skyrocket. The company predicted a recovery in the mobile market to pre-pandemic levels, but warned that a shortage of chips without memory posed a risk to its forecast.

In terms of the overall impact on smartphones, Gai said he expected the shortage to cut device makers’ production forecasts by 10%.

“I don’t think the shortage will have a severe impact, but it will have an impact,” said O’Donnell of Forrester.

So what does all of this mean for you, the consumer?

“The likely result here is higher phone prices and greater shortages for some models,” said O’Donnell.

“In Apple’s case, you might be able to get the high-end iPhone 12, but not the low-end iPhone XS,” he said. “Other smartphone makers like Samsung, LG and Chinese brands like Xiaomi and Huawei will all feel the pinch.”

– CNBC’s Sam Shead and Kif Leswing contributed to this report.