From battery-powered toys to washing machines, ACs, smartphones, TVs, and cars, anything that needs electricity requires semiconductors or chips. The small pieces of silicon are also critical for anything that connect with the internet. And these are in short supply.
The scale of the shortage impact
Tried buying a new phone lately? Or perhaps a Microsoft Xbox or Sony PlayStation console? Or committed some of your savings on booking a new car? Across sectors, production has been hit. Car buyers have waiting periods stretching into months. Appliances and tech products are out of stock, or consumers have to wait longer for delivery. The reasons are diverse. Last year, auto and tech companies cancelled chip orders to save on costs during the then unknown length of the pandemic.
“Due to the high lead time of semiconductor chips, advance ordering is very important. In the aftermath of Covid, where the demand was expected to fall, we are seeing the opposite happening,” said Aksh Chauhan, VP of operations and procurement at Cashify, a pre-owned gadget resale platform.
The companies now are at the back of the queue waiting for their chip stocks. The drought in Taiwan, an unexpected snowstorm in Texas, and power cuts in China have compounded the situation. “Renesas plant fire in Japan in Q1 and the Malaysian Covid crisis in Q2 had a huge part to play in the semiconductor supply chain issue,” said a Tata Motors spokesperson.
The wait gets longer
The time between ordering chips and when they are delivered is growing. According to the Susquehanna Financial Group’s latest estimates, the chip waiting period is now 21 weeks—the highest it has ever been. Such is the order volume from companies. In normal situations, the wait is around 14 weeks. Such is the intricacy of the process that it cannot be done any faster.
Companies running low on inventory are facing the reality of production lines grinding to a halt temporarily. And this waiting period would vary for companies depending on their industry, as well as how far back in line they are for their orders to get processed.
Impact on smartphones
If you want to buy a new iPhone 13 series phone, for instance, shipping estimates on the Apple India online store are between 4-5 weeks. That can change quickly as well.
The first warning signs came when Apple CEO Tim Cook said in July that supply constraints had begun to impact iPhone and iPad sales. Quite a contrast from Q4 2020, when Apple shipped 81.9 million phones globally.
Historically, gadget sales have peaked in the second half of the year, spurred by the festive shopping spree. This year, not so much.
The latest numbers do show an uptick compared with last year, which indicates positive consumer sentiment. Yet, it has not rebounded to 2019 pre-chip shortage levels. India’s Q2 2021 smartphone shipments have been 33.8 million units, less than 54.3 million (Q3 2020) and 44.8 million (Q4 2020). And Q2 2021 numbers are also short of 36.9 million in Q2 2019.
Not all doom and gloom
Personal computer shipments in India grew by 43% year on year in Q2 2021 and clocked 4.1 million units, according to research firm Canalys. Tablets have shown an annual growth of 52%, revitalising a sluggish category. Yet, once the inventory runs out and slower replenishment happens from factories, you may start to see longer delivery estimates for laptops. The new Apple MacBook Pro 14 and MacBook Pro 16 laptops, for instance, are indicating up to four weeks of waiting for deliveries.
Gets worse before it becomes better?
There is pessimism and the increasing chip lead times have not helped. “While 2021 is expected to see single-digit growth, 2H21 is likely to drop in comparison to the same period last year, with lower demand, uncertainties around the third wave, and persistent supply constraints,” said Navkendar Singh, research director at IDC India. He added components have become more expensive, a cost that companies will pass on to customers.
“The chip shortage is here to stay for at least a year,” said Chauhan. Companies that did not drastically cut chip orders are feeling confident. “Early this year, we onboarded two new manufacturing partners, DBG and BYD, to cater to consumer requirements and bridge the demand and supply gap,” said a Xiaomi India spokesperson. The company insisted that manufacturing in India has helped tide over the component shortage better than some of the rivals have managed. The company’s portfolios have not slowed.
Others are adapting, making the best of what is available. Tata Motors is working with what they call tier-II semiconductor suppliers, directly purchasing chips and leveraging alternate design with the use of standard chipsets.
Is preparing better the answer?
The only way to get over this present chip shortage is to increase the production capacities globally. Intel has committed an investment of $20 billion to set up new foundries in the US. Samsung is looking to invest around $17 billion to extend the capacity at its semiconductor foundry in the US. It is exploring options of setting up a second foundry as well. Over the summer, in a rare move for the corporate world with intense competition, Intel said it would use manufacturing capacities to start building mobile computing device processors for Qualcomm, as well as Amazon. Intel positioning itself against Taiwan Semiconductor Manufacturing Company and Samsung should in time help provide a better buffer against shortages.
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