Analysts are warning that microchip prices are set to rise as a global shortage of computer chips hits a “crisis point” all while demand for semiconductors continues to explode.
Computers, TVs, smartphones, home appliances and even cars require semiconductors to operate properly, but now, there’s an emerging shortfall in the number of semiconductors on the market that has been getting worse in recent months.
Semiconductors are often referred to as the ‘brain’ of a microchip, and allow a complicated series of functions to take place inside the chip.
When the hysteria of the COVID-19 pandemic was reaching its climax in March and April of 2020, a temporary closure of semiconductor production facilities throughout the globe staggered distribution.
Now that the initial and temporary shortfall in the number of semiconductors being produced has been overcome, analysts are warning that the surge in demand is reaching a crisis point for electronics manufacturers.
According to a report from The Guardian, “car manufacturers investing in tech-heavy electric vehicles, the boom in sales of TVs and home computers and launch of new games consoles and 5G-enabled mobile phones have all driven demand.”
That report cites the fact that Apple, the world’s largest purchaser of semiconductors had no choice but to delay the release of its iPhone 12 last year by two months, amid a global shortage of semiconductors.
For reference, Apple reportedly spends more than $58 billion purchasing semiconductors each year.
It also mentions the fact that “Ford recently cancelled shifts at two car plants and said profits could be hit by up to $2.5 billion this year due to chip stortages, while Nissan is idling output at its plants in Mexico and the US. General Motors has said it could face a $2 billion profit hit.”
Microchip Prices Rising as Global Shortage Hits and Semiconductor Demand Explodes
The most revealing example of the global shortfall in semiconductors can, however, be found in the case of Samsung, Apple’s major consumer electronics competitor, and the second-largest purchaser of semiconductors.
Interestingly, Samsung is also the world’s second largest producer of microchips for electronics.
This week, Samsung announced that it may well be forced to delay the release of its latest smartphone, citing the difficulties of mass production amid a global shortage of semiconductors.
Neil Campling, a technology and media analyst with Mirabaud has said that “chips are everything,” adding that “there is a perfect storm of supply and demand factors going on here. But basically, there is a new level of demand that can’t be kept up with, everyone is in crisis and it is getting worse,” Campling said.
“It is incredible that Samsung sells $56 billion of semiconductors to others, and consumes $36 billion of them itself, find it may have to delay the launch of one of its own products,” Campling concluded.
Automotive brands could potentially be reeling after many companies reduced the number of semiconductors being ordered during the pandemic, and are now at the back of the line when it comes to new orders.
The Guardian is reporting that the automotive industry purchases around $37 billion worth of semiconductors each year, with Toyota and Volkswagen spending around $4 billion a piece on chips.
“The worst affected have been autos because they were last to the party; if Apple is spending $56 billion a year and growing, who are you going to keep supplies going to first?” Campling questioned.
“There is no sign of supply catching up, or demand decreasing, while prices are rising across the chain. This will cross over to people in the street. Expect cars to cost more, phones to cost more. This year’s iPhone is not going to be cheaper than last year,” he concluded.
The problem is made worse by the fact that a semiconductor production facility can take more than 24 months until it is fully operational, and prices are expected to stay sky-high while production dwindles and demand continues to increase.