The global chip shortage is starting to have significant real-world effects

Over the past few weeks, the severity of the global chip shortage has intensified, and it now appears that millions of companies may be affected. As technology advances, the application of chips has expanded from computers and cars to consumer products such as electric toothbrushes and tumble dryers. The application of chips can be said to be everywhere now, but chips are still in short supply for some industry manufacturers, and the automotive industry is no longer the only field feeling the pressure of supply and demand.

Many companies are increasing their chip inventories to tide them over, but the situation is making it harder for other companies to buy chips.

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Alan Priestley, an analyst at research firm Gartner, said people are bound to be affected by the chip shortage, and this situation will appear in some form.

"That means they can't buy anything, or they pay a higher price to buy it," Priestley said.

South Korean technology giant Samsung said recently that chip shortages are having a serious impact on the TV and home appliance industries, while LG admitted that chip shortages are a risk.

"We have also suffered some impact due to the global chip shortage, especially in certain kit products and display production," Samsung's head of investor relations Ben Suh said in response to analysts' inquiries. "We are discussing supply plans with retailers and major channels so that we can allocate the procured chips to more urgent or higher priority products."

Koh Dong-jin, co-CEO of Samsung and CEO of its mobile business, said at a shareholder meeting in March that supply and demand of chips for the IT sector were severely imbalanced. At the time, the company said it might delay the launch of its next-generation Galaxy Note smartphone.

According to the Financial Times, LG said it is monitoring the situation closely because if the situation continues and is not resolved, no manufacturer will be able to escape the problem.

Other appliances at risk of chip shortages

Production of low-margin processors and chips, such as those used to weigh clothes in washing machines or power smart bread makers, has also been hit. While most retailers can still source these products for now, they may face supply issues in the coming months.

According to The Washington Post, even the pet industry has been affected by the chip shortage. CCSI, a company based in Garden Prairie, Illinois that produces fully automatic pet bathing machines, was recently informed by its circuit board supplier that its commonly used chip was out of stock. CCSI had to use another chip, but this required the company to adjust the design of its circuit board, which increased costs.

“This particular problem affects every aspect of the manufacturing industry, from start-ups to large conglomerates,” said Russell Caldwell, president of CCSI.

The automotive industry has been most affected

The automotive industry, which relies on chips for everything from engine management to driver assistance systems, has been hit hardest by the shortage. Companies such as Ford, Volkswagen and Jaguar Land Rover have had to close some production plants, lay off employees and cut vehicle output.

Stellantis, the world's fourth-largest automaker formed by the merger of Fiat Chrysler and Peugeot maker PSA, said on Monday that chip shortages had become more severe in the last quarter, and Chief Financial Officer Richard Palme warned that the impact could last until 2022.

According to a report recently released by Bloomberg, due to the chip shortage, some automakers are now producing cars without some high-end features. Nissan will reportedly no longer equip its cars with navigation systems, while Ram Trucks will stop equipping its 1,500 pickup trucks with standard "smart" rearview mirrors that monitor blind spots.

"Due to limited supply of the electronic components used in this option, we have currently discontinued this option on the Tradesman, Bighorn, Rebel and Laramie models," a Ram Trucks spokesman said, adding that the company plans to offer the option later this year.

In addition, car manufacturer Renault no longer installs oversized digital screens in the center consoles of some models of its cars.

According to a recent report by Bloomberg, some car rental services are also feeling the impact as they are unable to purchase the new cars they need. According to reports, Hertz and Enterprise, which traditionally made money by buying new cars in bulk and renting them out, are now having to buy used cars at auctions to do business.

"The global microchip shortage has impacted the rental car industry's ability to get new vehicles as quickly as possible," a Hertz spokesperson said.

He said he was now replenishing his fleet with low-mileage used cars purchased through auctions and dealerships.

A spokesman for Enterprise said the global chip shortage came at a time when market demand was high, which has affected new car deliveries in the automotive industry.

Complex problems involving many moving parts

TSMC, the world's largest chipmaker, said it expects the chip production data to meet the needs of automobile manufacturers in June this year.

However, Patrick Armstrong, chief information officer at Plurimi Investment Management, said recently that it would be difficult to achieve this timetable.

He said: "Ford, BMW and Volkswagen have all highlighted that there are bottlenecks in their auto production capacity because they cannot get the chips they need to manufacture new cars." He believes this situation will last for 18 months.

Reinhard Ploss, CEO of German chipmaker Infineon, said recently that the development of the chip industry is now in uncharted territory.

"What's happening right now is that all verticals are booming, and I've never seen anything like it," he said. "It's very clear now that supply and demand need to be rebalanced, and that may take some time. I think two years is too long, but it will certainly last until 2022. I think more capacity will be added... I expect the chip shortage to ease next year."

"It takes time to increase chip production," said Priestley, director of technology and services research at Gartner. "Because of the production time, users cannot immediately obtain chip products from chip suppliers. If you place an order now and there is sufficient production capacity, you will have to wait three months or more to get these chips."

He added, "Most consumer products have extended supply chains, and we haven't started to see the impact of chip shortages in some areas. And if Apple makes a new phone now, they might not be able to ship it until the end of the year."

Meanwhile, Priestley believes the auto industry's problems are compounded by the fact that automakers aren't using the most advanced chips or the most cutting-edge chips.

"They tend to use older chips," he said. "Chipmakers are clearly moving to higher-revenue leading-edge products, and they are not adding that capacity on older lines."

Technological sovereignty

Countries around the world are now forced to consider how to increase the number of chips they produce. The vast majority of the world's chips are made in China, with the United States the second-largest producer. The European Commission has said it wants to strengthen Europe's chip production capabilities as a way to increase control over what it considers critical technologies.

Europe currently produces less than 10% of global chip production, although this proportion has increased from 6% five years ago, but the European Commission hopes to increase this figure to 20% and is planning to invest 20 billion to 30 billion euros to achieve this goal.

U.S. tech giant Intel Corp has offered to help, but it reportedly wants 8 billion euros in public subsidies to build chip factories in Europe.

Intel Corp. Chief Executive Pat Gelsinger met with two European Commission members, including Thierry Breto, in Brussels after a meeting with a German minister.

"Both the U.S. and European governments want to be more competitive than Asia in chips," Gelsinger said in an interview with the media. He added that the company is seeking to obtain subsidies of about 8 billion euros from Europe.

In March this year, Intel also announced plans to invest $20 billion to build two new chip production plants in Arizona.

"It will take two to three years before we see the chip shortage ease and increased production capacity to meet future market demand," said Priestley, an analyst at Gartner.