The world has been made aware of the critical importance of a resilient supply chain for our global economy. Covid-19 has exposed a plethora of shortcomings. The war in Ukraine only exacerbated that. And for the most part, we hear a range of opinions about when these problems can be fixed.
One level deeper in the supply chain discussion is the chip shortage. And while semiconductors were far from the only thing to have huge demand spikes with a range of materials, labor and finished product production, our disproportionate reliance on semiconductors was undoubtedly the most emphasized.
Despite the pandemic, the economy grew rapidly after being temporarily shut down. The unprecedented stimulus pumped into the economy has led to a remarkable surge in demand for everything from e-learning laptops to cars.
However, the early impact of the pandemic exposed the glaring shortcomings of our chip manufacturing capacity and the disproportionate manufacturing being done in Asian countries, mainly Taiwan and Korea. We also witnessed the impact that a 50 cent chip can have on entire industries like automobiles, where supply chains have stalled due to the inability to buy a single lagging edge semiconductor.
Now there is a new potential risk, at least according to some analysts who think we could see a huge glut of semiconductors in the coming year. This hypothesis is based largely on the idea that a focus on increased manufacturing combined with a slowing economy further dampened by high inflation and rising interest rates could push the demand for chips off a proverbial cliff. That would put semiconductor companies in a rare position: too many chips, too few buyers and slowing growth.
An abundance of chip supplies is possible. However, I see it differently. Technology is deflationary, and while a number of macroeconomic and geopolitical factors have pushed growth stocks, including cloud, infrastructure and chip makers, down in recent months, I simply don’t see leading semiconductor companies endure a prolonged period of decline.
In fact, secular trends and the deflationary features of technology would likely allow semiconductor companies to prosper even if a recession hits — and this doesn’t even factor in the ongoing wave of Covid-19 and geopolitical uncertainty that only further hampers supply.
There are many ways things could turn out for chipmakers and the race for more resiliency in the supply chain, but here are the two scenarios that I think are most likely to shape the near to medium term for chipmakers.
The first scenario is almost status quo. It is rooted in the deflationary nature of technology and the world’s acute awareness that the demand for chips is high and that our supply chain is too dependent on Taiwan and Korea.
Secular trends such as remote working, autonomous vehicles, metaverse and cloud computing will act as catalysts for semiconductors. While a slowdown in the economy and a less accommodative Federal Reserve could hurt stock prices, tech company revenue growth and profits are likely to remain strong.
We witnessed this during the last financial quarter, despite more than three months of intense sales in technology, pushing the Nasdaq into correction territory despite recent positive moves for growth and technology names.
Note that this does not mean that stock prices for technology and semiconductor companies will not see a further decline based on more negative growth sentiment. When this happens, however, it marks the sometimes obtuse division between markets and economies where stock performance does not always coincide with corporate performance.
Republicans and Democrats alike know that not only is it crucial to straighten the supply chain to meet the demand for finished goods, but that a more resilient supply chain can dampen inflation has become abundantly clear.
Higher tariffs and inflation have hurt so much of the population that policymakers looking to win the hearts and minds of voters know that priority must be given to a stable supply chain for everything from gasoline to food to French fries. That may be an optimistic view, but very realistic.
Keep demand high, fill supply gaps through substantial investment in excess manufacturing capacity and avoid inflation while allowing the Fed to remain more moderate. A victory for lawmakers, businesses, investors and voters.
The second scenario is one that I might see as the worst case scenario for chipmakers, technology and the economy as a whole — but it would likely be temporary. This scenario would most likely materialize if the war in Ukraine continues and inflation remains high despite the Fed’s actions. That would mean high gas prices, food prices and supply shortages, keeping prices for chips and finished products high despite a prolonged contraction in the economy.
In this case, I still see chipmakers struggling to meet demand as companies spend money on software, automation, security, connectivity and cloud to streamline operations. However, the likely downturn would be in some consumer goods powered by chips such as premium-tier smartphones, laptops and game consoles.
Depending on the severity and duration of the recession, coupled with continued demand for technology, it’s hard to see this last long. An ongoing recessionary environment would most likely prompt the Fed to loosen up. The recent record of policymakers suggests that another stimulus could be pumped into the economy, relaunching the demand cycle for chips.
I remain convinced that demand for chips will remain strong as everything we use, from cell phones to crypto mining to smart homes, continues to see increased chip density to satisfy our insatiable appetite for greater productivity, intelligence and connectivity.
Add the ongoing impact of Covid world events to the current war. We see lingering supply chain risks, such as temporary plant closures in the East or shortages of raw materials such as neon gas and palladium in Eastern Europe, which could potentially further erode the delicate semiconductor supply chain.
Companies such as Intel, TSMC, Micron, Samsung and GlobalFoundries building manufacturing capacity in the US and Europe remain critical. Further support from policy makers is necessary. Any excess would likely be temporary, while the potential risks of future shortages remain significant.
My short-term favorites: Nvidia
NVDA,
-3.36%,
AMD
Why is there a shortage in semiconductors?
AMD,
-0.75%,
Why is there a semiconductor shortage?
Marvell
How long will the semiconductor shortage last?
MRVL,
How long will the semiconductor shortage last?
-3.42%,
How long will the chip shortage last?
Qualcomm
Will the semiconductor shortage end?
QCOM,
Is the chip shortage getting any better?
-3.01%.
Is there really a chip shortage?
“Sleepers”: Grid
LSCC,
How long will the chip shortage last?
-1.96%,
Is the chip shortage getting any better?
Micron
Is the chip shortage over?
MU,
Will the chip shortage end in 2023?
-4.39%,
Why is there a chip shortage?
GlobalFoundries
Will the auto industry recover?
GFS,
-5.13%.
How long will the chip shortage last for cars?
Will the chip shortage end?
Longer term (more than two years): Intel
Will the chip shortage end in 2022?
INTC,
Is the car shortage getting better?
-0.25%,
What will the automotive industry look like in 2025?
Taiwan Semiconductor
What will the auto industry look like in 10 years?
tsm,
What does the future hold for the automotive industry?
-1.58%.
What percent of cars will be electric by 2025?
Daniel Newman is the principal analyst at Futurum Research, which provides or has provided research, analysis, consulting or advisory services to Nvidia, Marvell, Intel, Qualcomm, Lattice, Micron, Samsung Semiconductor and dozens of other companies. Neither he nor his company has any equity positions in said companies. Follow him on Twitter@danielnewmanUV.
How long does it take for car markets to recover?
Chip shortage – less supply, more demand A confluence of problems led to the semiconductor shortage. In addition to long-standing industry challenges, such as insufficient capacity at semiconductor plants, the COVID-19 pandemic has presented unprecedented challenges.
Will there be a car shortage in 2022?
What caused the 2021 chip shortage? The snowball effect of the COVID-19 pandemic happens to be the biggest reason of many, creating the global chip problem. Other possible causes include the trade war between China and the United States and the 2021 drought in Taiwan.
How long will the car shortage last?
The combination of rising demand for consumer products containing chips and pandemic-related production shutdowns has resulted in shortages and skyrocketing prices for semiconductors over the past two years.
Will the car industry recover?
Experts do not expect the supply situation to decline at the earliest by mid-2022, if not until 2023.
Who provides semiconductors for Tesla?
Experts do not expect the supply situation to decline at the earliest by mid-2022, if not until 2023.
No one can predict exactly how soon the shortage of semiconductor chips will end. But experts seem to agree that the shortage will persist into the second half of 2022. Some auto managers estimate production will not return to pre-pandemic levels until 2023.
Who does Tesla get semiconductors from?
Some experts and auto companies predict that the global chip shortage could ease in the second half of this year. Deloitte believes that many types of chips will still be scarce in 2022, with some component lead times up to 2023.
Who makes semiconductors for Tesla and GM?
The chip shortage is still a major factor for the industry through 2022. For the full year, Ford expects an improvement in the chip situation and plans to ship 10% to 15% more cars than in 2021. to about 2.1 million or 2.2 million vehicles.
Does Tesla make their own semiconductors?
According to a study by the U.S. Department of Commerce, the median inventory of consumer computer chips, such as automakers and medical device manufacturers, has fallen from 40 days in 2019 to less than 5 in 2021.
Does Tesla make their own semiconductors?
Why is there a chip shortage in 2021? Causes. The global chip crisis is due to a combination of several events with the snowball effect of the COVID-19 pandemic being the main reason for the shortages accelerating. Another factor is that the demand is so great that the existing production capacity cannot keep up.
Who makes semiconductors for Tesla?
No one can predict exactly how soon the shortage of semiconductor chips will end. But experts seem to agree that the shortage will persist into the second half of 2022. Some auto managers estimate production will not return to pre-pandemic levels until 2023.
Does Tesla make their own chips?
The chip shortage is still a major factor for the industry through 2022. For the full year, Ford expects an improvement in the chip situation and plans to ship 10% to 15% more cars than in 2021. to about 2.1 million or 2.2 million vehicles.
Who makes semiconductors for Tesla and GM?
“With improving prospects for semiconductors in the US and China, we expect our 2022 results to remain strong,” said Barra. So that’s it. The chip shortage is over and we can finally buy cars and game consoles again without worrying about whether they are in stock, right?
Who makes semiconductors for Tesla and GM?
About 56% of semiconductor industry leaders expect the chip shortage plaguing us during the pandemic to last through 2023, according to KPMG.
Who makes the semiconductor chips for GM?
How the shortage started. Computer chips started to become scarce early in the pandemic, as chip buyers, especially automakers, cut their orders short for fear of a global recession. In response, semiconductor factories reduced their production. An increase in demand.
Who makes the semiconductor chips for cars?
We expect growth for the auto sector in 2022, although there are still limitations. With the above background in mind, we think 2022 tends to turn out to be a healthier recovery year than 2021, assuming the semiconductor shortage starts to diminish.
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