Chipageddon – the global computer chip shortage
Australians are facing longer wait times for consumer electronics & new cars due to a global shortage of computer chips or microprocessors that function like the brain of every electronic device. Modern cars for example contain about 10 microprocessors and control everything from fuel intake to windscreen wipers. The shortage has been caused by disruptions to microchip manufacturers around the globe who have fallen victim to COVID related disruptions as well as a combination of natural disasters like drought, fires and snowstorms:
Samsung’s Austin Texas [USA] chip factory was hit by a snowstorm that caused massive electricity shortages and halted production.
Taiwan Semiconductor Manufacturing Company [TSMC] is one of the largest chip producers in the world, servicing the auto and electronic consumer goods industries. In 2020 their factory reservoirs dried up after prolonged drought in Taiwan. With a single computer chip using up to 8,000 litres of water to produce, the factory needs thousands of tonnes of water a day & are struggling to keep up with demand.
The Renesas factory in Japan which produces a third of all chips used in cars worldwide experienced a fire that destroyed precious equipment and delayed production for a month.
A couple of the main industries that are being affected are auto manufacturers & electronic consumer goods and both categories are being affected differently:
Auto manufactures who cut microprocessor orders last year after a short dip in sales found themselves at the back of the queue when they tried to reorder as the market rebounded. The auto industry then had limited ability to negotiate faster turnaround because they make up only a small fraction of the total market [autos buy about $37bn worth of chips per year whereas Apple spends +$56bn on their own].
The wait time for purchasing a new car in Australia is over six months & some used cars models are now selling for more than new ones with consumers willing to pay a premium for what is available for purchase & drive now.
There are reports of shortages across of a range of electronics including TV’s, mobile phones and gaming consoles in Australia for the foreseeable future due to high demand and limited supply. Retailers including JB Hifi and The Good Guys have seen profits and share prices soar on the back of a spending spree as consumers increased their at-home entertainment during COVID. Some specific products and companies that have been affected are:
Gaming consoles: Sony and Microsoft have had to cut back production of their PlayStation 5 and Xbox Series X gaming consoles effecting their ability to hit sales targets.
Apple was forced to delay the launch of the much-hyped iPhone 12 by two months last year due to the shortage.
Samsung may have to postpone the launch of its high-end smartphone due to the shortage. This is an interesting situation because Samsung is also the world’s second-largest producer of chips but is still heavily reliant on outsourcing less advanced chips to other factories in manufacture of its mobile phones.
What can Australian consumers expect for the future?
Auto industry experts believe the situation will normalise in 2021 as new auto buyers are historically quite patient, but we can expect to see auto makers using their limited supply of computer chips in the production of the most profitable models like SUVs and trucks. From a price perspective it’s unlikely that consumers will see an increase due to competition in the category but there will probably be fewer discounts being offered.
Electronics manufacturers are less optimistic believing the chip shortage will continue for some time yet. Both supplier prices for the chips and demand is increasing & It takes significant time to set up new production factories to level out demand. Industry experts forecast these costs to be passed on to the consumer with phones and other electronic devise costing more and launches of new products being delayed.