Recently, American MNC Qualcomm said it is struggling to keep up with the dramatic rise in demand for chips. The world’s largest chipmaker was reading out the writing on the wall.  

The chip shortage has also taken a significant toll on the automobile sector and has now spilled over to other industries. When chipmakers sneeze, the whole world catches a cold.

Chip Crisis

Qualcomm has posted a 21 percent revenue increase in the last quarter (October-December 2020). The income has grown from $925 million to $2.455 billion, a 165 percent spike. Despite an excellent financial performance, CEO Cristiano Amon said the company doesn’t have the wherewithal to plug the demand-supply gap for chips. The shortage is likely to continue for the next six months.

The pandemic has galvanised the demand for computers as work from home has become the new normal. As more and more people started using personal vehicles to avoid public transport, the automobile industry also saw a demand surge. Apple, one of the major customers of Qualcomm for 5G modem, has failed to meet iPhone 12 devices timelines owing to limited availability of components. 

Amon spoke of the bottleneck issue where many industries depend on a handful of companies for their chip requirements. Like other prominent chip designers, Qualcomm depends on Asian companies such as Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung. These two companies have emerged as the leading resources for the production of advanced semiconductors.

Automobile Sector

“The semiconductor (microchip) shortage is disrupting automotive production and may delay the recovery of new vehicle sales and profitability in the sector. Carmakers are reducing output and selectively idling plants until the shortage eases, which we expect to take several months,” according to Fitch Ratings.

The semiconductor supply crunch has sent the automotive industry into a tizzy. 

Corroborating Qualcomm’s statement, the Finch report said the high movement of consumer electronics during the pandemic triggered the crisis. The automotive industry’s situation is particularly precarious as the electric vehicle demand is at an all-time high, eating into the reserves of the chipmakers.

General Motors (GM) was forced to cut down production at four assembly plants–Fairfax, Kansas; Ingersoll, Ontario; and San Luis Potosi, Mexico. Additionally, the South Korean plant at Bupyeong 2 is running at half its capacity.

In the first quarter of 2021, Ford Motor’s vehicle output dropped by 20 percent. Ford spokesperson said the company plans to cut the production of its biggest moneymaker–the F-159 pickup truck.

Semiconductor shortage has also impacted companies such as Nissan, Volkswagen, Toyota, Mazda and Subaru.

Now, the carmakers are prioritising available chips for their most profitable and best-selling models.

Gaming Industry

The gaming industry has been another major casualty of the chip crisis. Nintendo, Sony, and Microsoft are all feeling the heat. Speculation is rife that the situation is getting worse for the game hardware industry.

Interestingly, some experts opine the gaming industry precipitated the crisis. During the pandemic, the demand for graphics chips for PCs and consoles shot up, catching chipmakers off guard.

Wrapping Up

Chip Famine occurs from time to time when the demand for semiconductor chips outstrip production. It has happened in 1988, 1994, 2000, 2004, and most recently, in 2011. The shortages were usually the result of a black swan event (2011 Japan earthquake) or rapid technology adoption.