Shortage of chips: the "tech" still does not see the end of the tunnel

Posted 01 March, 2022

When will the end of chip shortages for "high-tech" products? At the Barcelona mobile show, manufacturers and specialists are calling for patience, as the war in Ukraine raises fears of further disruption in a market under tension.

Logistical problems, stock shortages, overwhelmed factories... "The situation remains very complicated for the entire sector: we will have to be patient", warns Ariane Bucaille, a specialist in the semiconductor market at Deloitte.

The shortage of chips, linked to the boom in global demand for electronic products and the disruption caused by the health crisis on supply chains, has been shaking the entire world economy for the past year.

It hit hard the automotive industry and the computer sector, very dependent on these electronic components, but also the smartphone market – even if the latter resisted better than other branches of activity.

According to analyst firm IDC, cell phone sales fell 3.2% in the fourth quarter to 363.1 million units. In China, they fell by 11% over the same period, according to Counterpoint research.

That hasn't stopped smartphone giants like Apple and Samsung from raking in record profits in 2021.

But this situation has led to major delays in product launches, which cloud the outlook for the sector.

Neon and palladium

How will the war in Ukraine affect this already disrupted market? For Marina Koytcheva, an analyst at CCS, it is "unlikely" that the smartphone sector "will be spared by the crisis", "given the economic and geographical importance of Russia and Ukraine".

Russia is indeed a major supplier of palladium, a rare metal ubiquitous in electronics. Ukraine, for its part, has large reserves of neon, a gas essential to the lasers used in the manufacture of semiconductors.

"Ukraine now supplies nearly 70% of the world's neon demand," recalls the Taiwanese design office TrendForce. “If the supply of these materials is cut, there will be an impact”, which will result in an “increase in production costs”, he estimates.

On the side of the chip manufacturers, present in number at the Mobile Show (MWC), we want to be reassuring. “We do not anticipate any impact on our supply chain,” said the American Intel, specifying that we have “diversified” sources.

"We only use a small amount of neon" of which "less than 20% comes from Ukraine and Russia", assured AFP a spokesperson for the Dutch supplier ASML, indicating that it was examining alternative sources of supply.

A message was relayed by the Semiconductor Industry Association (SIA). The sector "has a diverse set of material suppliers. We do not believe there are any immediate risks of supply disruptions," she said in a statement.

Colossal investments

Whatever the impact of the Ukrainian crisis, a quick return to normal is unlikely. "Semiconductor needs are currently very high (...) The market remains unbalanced", insists Ariane Bucaille.

According to the American bank JP Morgan, the shortage of semiconductors is expected to continue throughout 2022. According to Deloitte, the situation should not improve before 2024, despite efforts to increase production capacities.

In recent months, the giants of the sector have announced tens of billions of investments in new factories - like the Taiwanese TSMC, or the Korean Samsung Electronics, which will inject 15 billion euros into a production line in Texas.

But these investments, intended to diversify the production of chips, "will only bear fruit in the next two to three years", being "complex technologies", involving finding "an extremely qualified workforce", underlines Ariane Bucaille.

An opinion shared by the manufacturers themselves. “We are facing a complicated moment”, with “unprecedented demand”, recognized at a recent conference by the CEO of Intel, Pat Gelsinger. A situation which should continue, according to him, "until 2023 or even beyond".

 

 

 

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