Samsung and Apple both expect to take a sales hit this quarter because of the ongoing global chip shortage as the crisis continues to plague the automobile industry, with BMW-owned Mini and Jaguar Land Rover the latest companies to pause production.
A perfect storm of Covid-19, severe weather, factory fires and soaring demand for silicon has resulted in an unprecedented shortage affecting multiple sectors.
Go deeper with GlobalData
As both a manufacturer and consumer of semiconductors, Samsung finds itself in the unique position of rising chip profits from silicon-hungry customers but slumping sales of its own mobile devices as it struggles to stretch its supply across its own devices and orders to its own fabrication plants.
“Due to the global semiconductor shortage, we are also experiencing some production disruption around certain set products and displays,” said Ben Suh, executive vice-president of investor relations at Samsung.
The South Korean company said it would focus on “maximising efficiency” of its current capacity and expand output at its Pyeongtaek No.2 line.
The crisis did not prevent Apple from reporting blowout quarterly results this week, with CEO Tim Cook telling investors on Wednesday that Apple had been able to fall back on chip reserves for its iPhones and Macs. However, it anticipates losing $3bn to $4bn in sales in the current quarter as it gets squeezed by chip supply issues.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataQualcomm, one of the world’s biggest suppliers for mobile phone chipsets, this week reported an earnings beat but said its revenues and profits would have been higher if it were not for the semiconductor shortage. Incoming Qualcomm CEO Cristiano Amon told investors on Wednesday that the chip shortage was going to get better for the US firm “at the end of the year.”
On Friday Bundesbank chief economist Jens Ulbrich told Reuters that the German central bank expected semiconductor shortages to “worsen somewhat in the second quarter.”
He added that it “could then normalise from the middle of the year.” The supply bottlenecks now pose a risk to Germany’s economic recovery, economists warned.
Previously executives from semiconductor companies Intel, Nvidia and Taiwan Semiconductor Manufacturing Company (TSMC) have said they expect the crisis to run into 2022.
This week BMW-owned Mini became the latest manufacturer to temporarily stop making cars because of difficulties sourcing chips, pausing production for three days at its Oxford, UK factory.
Last week Tata Motors’ Jaguar Land Rover paused UK production due to the microprocessor shortage.
Automakers have been particularly hard-hit by the chip shortage. After cancelling orders when the pandemic first broke because of slumping sales, car manufacturers found themselves at the back of the queue with semiconductor suppliers, who had redirected manufacturing capacity to the booming consumer electronics market.
The squeeze on semiconductor supply has also affected sales of next-generation games consoles such as the PlayStation 5 and the Xbox Series X.
The chip shortage is primarily affecting older-generation semiconductors that are more widely used in cars than modern consumer electronics. Today’s cars can easily contain more than 100 chips and according to GlobalData Automotive analysts, “modern vehicles are as reliant on computer chips as they are on their engines and chassis.”
Ford anticipates the chip shortage will have to cut vehicle production by 50% at a cost of $2.5bn in lost sales.
Government and industry respond to semiconductor shortage
In response to the chip shortage, semiconductor suppliers have announced plans to expand capacity. On Friday chipmaking equipment supplier BE Semiconductor said its focus was on “ramping production to meet customer delivery dates.”
It follows recent announcements of a $20bn investment from Intel and $100bn from TSCM to increase chip-making capacity.
As part of his $2.3tn infrastructure plan Joe Biden has earmarked $50bn for semiconductor research and manufacturing in a bid to increase domestic supply. The manufacturing of physical chips is concentrated in a handful of foundries largely based in Taiwan, South Korea and the US.
The EU is reportedly mulling the creation of a semiconductor alliance between European chip manufacturers to reduce dependency on offshore supply chains, sources told Reuters this week. It could see a leading chipmaker encouraged to build a major fabrication plant within the EU.
However, these investments will not alleviate the current crisis as it will take time to expand fabrication facilities and even longer to build new ones.
“There are only so many chips to go round, and with such a limited supply, it may be quite some time until a healthy pipeline is re-established. Fabs are complex, time-intensive operations that require expensive expertise and intellectual property to construct,” said Tom Fairbairn, distinguished engineer at enterprise network architecture company Solace.
“Extending existing production lines can take months, and ones from scratch can take years and cost billions of dollars. In this case, it’s going to be quite some time until the crisis has abated.”
A Verdict analysis of recently published government figures showed that UK-based carmakers forced to halt or reduce production in recent months have been placing workers on Covid-19 furlough and claiming their wages from the Coronavirus Job Retention Scheme, raising the question of whether their struggles were directly attributable to the pandemic or due to the semiconductor shortage.
