Automakers seen to bear the brunt of chip shortage

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THE chip shortage that is being experienced in the semiconductor sector is expected to have a more pronounced impact on the automotive sector compared with the consumer electronics industry.

According to industry insiders surveyed by StarBizWeek, this is due to the lower priority that is being given by the semiconductor industry to the auto makers as volumes from this segment are much lower.

The apparent worldwide shortage in semiconductor chips appears to continue to escalate. The issue appears to be sparked by fears from the spillover effects of the US-China trade war, which drove the stocking up of inventory of semiconductor chips.

The initial shortage is now compounded by various factors including the increased demand that is seen due to the ongoing Covid-19 pandemic, as people generally bought more desktops, laptops and smart devices to power their remote working and learning needs.

“It appears to be a perfect storm that has hit the industry compounded by several factors, causing the shortage, ” QES Group Bhd managing director and president Chew Ne Weng (pic below) tells StarBizWeek.

“Supply chains had also been affected in early 2020 when Covid-19 first broke out. This caused manufacturers to cut down their production. All the big manufacturers basically reduced it in anticipation that it would be quite bad for at least three quarters or so, ” Chew says.

He says the US-China trade frictions then drove many China tech companies such as Huawei to stock up and buy up all the chips available in the market.

“They bought all these chips as a risk mitigation step: to reduce supply risks. When they bought up a lot, the rest of the players had also (followed suit) and bought up a lot as well on fears that they would be the last to get (supplies). This churned up the artificial demand tremendously, ” Chew says.

The ongoing shortage had recently also been compounded by natural disasters happening at around the same time in various locations that are involved in the semiconductor supply chain.

It was reported in February 2021 that a winter storm had closed computer-chip manufacturing facilities in Texas, which is the heart of semiconductor manufacturing in the United States.

A prolonged dry spell, which had led to a drought in Taiwan, had also affected the production for semiconductor giants such as Taiwan Semiconductor Manufacturing Co Ltd and Micron Technology Inc that have major chip-making operations in the affected areas.

Semiconductor fabricators require a substantial amount of water for tasks such as washing the wafers and cooling processes to keep their operations running.

It was reported yesterday that Taiwan had received heavy rainfall again. However, the government is still maintaining its drought alert there and is telling the public to continue conserving water.

At around the same time, there had also been various fires that had broken out in various semiconductor manufacturing facilities in Japan that mostly supply to the automotive industry.

“All these have compounded the shortage. In the past three months, the automotive players have been concerned as their production is impacted. Many governments would be concerned because the automotive industry has a big spillover effect on the broader economy, ” Chew says.

“Manufacturing of a vehicle has got so many tier-1,2 and 3 outlying suppliers. This is very significant. If let’s say the shortage had impacted production of two million cars. You can multiply the effect of this to the supply chain, assuming one car uses 500 screws. This is lost revenue to the supply chain since they can’t make the car, ” he adds.

Meanwhile, MMS Ventures Bhd CEO Sia Teik Keat tells StarBizWeek that semiconductor manufacturers usually prioritise consumer electronics companies for supplies.

“For the automakers, they cannot complete the car assembly without the IC chip. Priority is usually given to the PCs, laptops and smart devices as they have much higher volumes while for automotive, the volumes are much lower, ” Sia says.

Globetronics Technology Bhd CEO Datuk Heng Huck Lee says that shortages appear to only affect certain segments within the industry and not across the board.

Heng says that in his capacity, he does not feel a shortage is happening on his end.

Intel Corp CEO Pat Gelsinger was reported as saying earlier in the week that the global shortage of semiconductors could take several years before it is resolved.

He attributed the shortage to the sudden surge in demand that has placed huge strain on global supply chains.



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