Supply bottlenecks are among the most debated topics in the media and an emphasis is being put on chip shortages. As the world is dependent on factories based in South-East Asia, a lower output combined with increasing demand generated by a recovery from the pandemic is creating a negative feedback loop that is expected to last into 2022.
Chips are essential for a lot of the products people use, which creates issues for companies that strive to conduct their regular activity in these times of shortage. Various sectors are being affected, leading to price increases, production cuts, lowering inventories, and uncertainties for the next few months.
Car manufacturers cutting production
Modern cars depend on chips and, as the crisis has deepened over the past several months, manufacturers are forced to cut down on production. One example is Toyota, which cut November 2021 production, even though it was among the few brands that had stockpiled chips.
Companies like Volkswagen face more severe problems, as it reported a 28% production decline for September. On the other hand, companies that produce semiconductors are benefiting from rising prices. Stock trading on Intel, Qualcomm, TSCM, and others intensified as investors found value, given the chip shortage is expected to last longer.
Smartphones market to be impacted?
The smartphone industry is also experiencing hardships. Research published in October highlights that smartphone manufacturers are expected to be hit even harder than previously thought.
In this case, application processors are a key component in phones and the shortage has been triggered by low yield rates, as companies like Qualcomm and MediaTek rely on foundries to make their chips.
Even though measures have already been taken and manufacturers are building new factories to increase production, it could take another few years until things get back to normal. Supply constraints might be exacerbated if demand picks up steam even further.
It should be noted that not just cars and phones are not able to work without chip-dependent computers that power them. Dishwashers, refrigerators, freezers, and microwaves can’t be manufactured without these components as well, which means that the entire appliances sector is now affected.
That’s not all, though. New technologies like mini LED backlights are now available for laptops, tablets, and TVs. This is another factor that led the 3 biggest chip producers in Taiwan to predict supply will be outpaced by demand for at least the rest of the year.
Persistent problems to raise more concerns
Inflation is also a growing concern around the world and chip shortages have been one of the top drivers. This creates difficulties for policymakers, which have been using monetary and fiscal support to compensate for the economic damages caused by the pandemic since the beginning of 2020. High inflation means support must be removed and monetary policy changed, so it will not act as a fuel for even higher consumer prices. This factor is impacting the already fragile global economic recovery.
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