Semiconductor Makers Face Chip Shortage

Scarcity Pushes Prices Higher

The semiconductor industry is experiencing a shortage in chips used in cars, smartphones, and other electronic devices. The issue is multifaceted, and involves evolving product offerings, increased demand for high-powered electronics, supply chain delays, and coronavirus-related factory shutdowns. These difficulties have resulted in delayed orders, rising prices rising for some semiconductors, and even pauses in auto production. Despite logistical difficulties, analysts say there was a record amount of investment in the semiconductor industry last year and the sector is headed for even more growth. Analysts expect to see 6% growth in the chip industry in 2021—a record high.

For consumers, the increased demand and limited supply could eventually translate to higher prices for devices powered by semiconductors. There could also be delays in getting these products to consumers as shortages work their way down the supply chain.

Factors Behind the Shortage

The coronavirus pandemic has caused a boom in demand for laptops and other personal electronics. Remote work has also meant a spike in demand for cloud-computing services and the data centers that power them, which also depend on semiconductors. Concurrent with the shift in work habits has been the release of 5G smartphones, which also call for more powerful chips.

As demand for semiconductors rises, suppliers are facing a variety of issues. The United States placed restrictions on Chinese telecom company Huawei Technologies, the largest smartphone seller in the world. Back in August Huawei said it was already running out of chips for its phones due to US sanctions. Meanwhile, chipmaker Nvidia (NVDA) has been facing the opposite issue—the company is unable to make its new chips fast enough to meet demand.

Manufacturers Stockpile, Compete for Limited Capacity

The car industry has been particularly hard-hit by the chip shortage. Last week, Ford Motor Co. (F) said it would idle a Kentucky factory due to chip shortages, and other carmakers had to change their production plans. General Motors (GM) requested that its suppliers stockpile at least one year’s worth of chips to combat shortages.

Chip makers and brokers are warning companies that the shortage could last through the end of 2022 as they work to stabilize supply amidst overwhelming demand and supply chain issues. Investors in the semiconductor market as well as in the auto and tech industries will be eager to see how the next year unfolds.

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