Since December last year, microchips, the components necessary for the operation of computers, smartphones and practically every electronic device have been in short supply in some production sectors: the main global manufacturers are struggling to keep up with market demand, which has increased due to of various phenomena including the coronavirus pandemic and the trade war between China and the United States.
For now, this global shortage of microchips (or just chips) has affected almost exclusively the automotive sector, where they are essential for the operation of many non-mechanical elements of a car, from the on-board computer to parking sensors. But a few days ago Samsung, the South Korean technology company which among other things is one of the largest microchip manufacturers in the world, announced that supply problems could affect the production of other devices, such as computers and consoles. So did Qualcomm, an American company that designs microchips for smartphones and various devices, and others.
The shortage of microchips in the automotive sector began in late December last year, when Volkswagen said it would produce 100,000 fewer cars in its factories in Europe, China and the United States because two of its main suppliers, Bosch and Continental weren't able to find enough microchips to supply the German company with components.
Within a few weeks, virtually all the other major automakers had announced delays and slowdowns in production due to chip shortages, Bloomberg said: Nissan said it would slow production of the Note, one of its best-known models. ; Fiat Chrysler had suspended production in some factories in Canada and Mexico; Honda had cut production of 4,000 cars at a factory in Japan; Ford had suspended production for a week at an SUV factory in Kentucky, in the United States, and for a month in another in Germany; General Motors had announced that starting February 8 it would stop production in three factories between the United States and Mexico and would halve production in South Korea.
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Analyst firm IHS Markit has estimated that global car production will be reduced by three percent in the first quarter of the year, but other estimates are more serious, such as those from insider sources who told the Financial Times that in February the drop in production could be 10-20 percent. Economic losses are also very large: Ford, for example, has estimated that it could lose $ 2.5 billion due to slowdown in production and sales.
The reasons for the shortage of microchips in the automotive sector are partly related to the characteristics of this industry and partly more general. In the first half of 2020, due to the coronavirus pandemic, the pace of car production slowed to a near halt around the world. In the second half of the year, production resumed at a very strong, and largely unexpected pace, which put automobile manufacturers in difficulty. Most car manufacturers, to keep costs down, usually keep a very small inventory of components: the business model (which is called “just in time supply chain”) provides that you buy almost exclusively what you need for the production already planned, with very limited margins.
Because of this, when demand soared in the second half of last year, automakers that came from a period of near-standstill production found themselves with insufficient inventory, and rushed to place massive orders for microchips, among others. what's this. At that point, however, the companies that produce them were already at the limit of their production capacity, because many other sectors (for example manufacturers of computers, or of servers for cloud services) had had similar increases in demand, and had made a lot of new orders.
The companies that produce microchips, finding themselves with a huge amount of orders from various production sectors, have generally snubbed those of the car manufacturers, for economic reasons. Electronics, which are managed by microchips, are playing an increasingly important role in car manufacturing: on average, 40 percent of the value of a new car is made up of electronic components. Despite this, the automotive sector uses only 10 percent of global microchip production, and this gives car manufacturers little bargaining power.
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In addition, automakers buy less advanced and expensive chips (the chips that go into a car's parking sensors are cheaper and easier to make than those that go into running a smartphone, for example) and are willing to pay less, because their business has much smaller margins than that of a smartphone manufacturer, who can pay more to get the components on time.
The difficulties of microchip companies in meeting global demand also have structural reasons, and not only concern the automotive sector.
First, these companies are relatively few. Building a microchip is a complex and expensive operation that requires the use of precision and high-tech facilities, and few companies are willing to make large investments in this production process. For example, there are only three companies able to produce the most advanced and latest generation microchips, those at 7 and 5 nanometers in the world: Intel in the United States, Samsung in South Korea and TSMC in Taiwan (among them Intel is in a bit of trouble: it is still working on 7-nanometer technology, and only the last two have already put 5-nanometer processors on the market, in the course of 2020).
When we talk about 5 nanometer microchips we mean the great level of miniaturization of the internal components of a chip (one nanometer corresponds to one millionth of a millimeter), which allow for greater power at the same size.
In addition to Intel, Samsung and TSMC there are many other companies in the United States, Europe and Asia that produce less advanced microchips, but in recent years the production has focused on fewer and fewer factories: famous companies such as Apple, Arm, Nvidia and Qualcomm, who are often referred to as manufacturers of microchips, actually just design them, and then outsource manufacturing to companies like Taiwanese TSMC. The latter in particular in recent years has conquered huge market shares: according to research by the analysis firm Trendforce cited by Bloomberg, 56 percent of all revenue generated by the production of microchips in the last quarter of 2020 went to TSMC.
One of the reasons for this strong market concentration was the trade war that former US President Donald Trump waged against China. To avoid duties and sanctions, companies around the world have canceled orders for microchips made to Chinese manufacturers (such as SMIC, which is unable to create the latest generation chips but which still has large production capacities), thus increasing the workload of other producers.
In addition, Trump, in the course of 2020, prevented the Chinese technology company Huawei from buying components that contained American technology, and since a bit of all microchips contain it, Huawei grabbed a lot of chips before the ban came into force. , reducing producers' stocks.
TSMC has announced over the past few weeks that it has increased its production capacity, and also said it will have more regard for the auto industry, especially after Peter Altmaier, the German economy minister, contacted the Taiwanese government. to complain about production delays caused to Volkswagen and other car manufacturers.
Despite this, the shortage of microchips has already spread to other sectors besides the automotive one. Lisa Su, chief executive officer of AMD, a US company that designs microchips, said the global shortage of microchips will likely continue into the middle of this year, and that it will create problems for the production of low-end computers and game consoles. video games.
Sony, the company that makes the PlayStation console, has made it known that production has actually slowed down due to the shortage of chips. Even Microsoft, which produces the Xbox console, has said that since the beginning of the year there have been slowdowns in its factories, but has spoken more generally of problems with supplies, without mentioning the microchips (it must be remembered, however, that the fact that the latest PlayStation and Xbox models are still hard to find in stores depends on many factors besides microchips).
Therefore, if consoles are excluded, it is difficult for now to say how much the shortage of microchips could harm consumers: much will probably depend on how long the production slowdowns will last.
It is not the first time that there are shortages of microchips in the world, although the last really serious was in the late 1980s. Later, the crises were triggered by catastrophic events, such as the 2011 earthquake in Japan, which severely damaged some factories. After that event, the Japanese carmaker Toyota decided to expand its component inventory, and thanks to that decision, it is today one of the automakers that have had fewer production slowdowns.
