Chip Shortages and Supply Chain Woes Will Last Through 2022, Business Figures Say

A Chinese employee wearing a mask and protective suit works on a smart chip production line in Sihong county in China's eastern Jiangsu Province on Feb. 16, 2020. (STR/AFP)

A chip shortage that is disrupting auto production and the technology industry is expected to continue until the end of 2022, according to ARM Holdings, a leading semiconductor designer based in Cambridge, England.

Industries hit the most due to shortages include consumer electronics, switch consoles, and especially, the automobile sector. Based on one estimate, manufacturers will be cutting down production of 7.7 million vehicles in 2021.

Simon Segars, CEO of ARM Holdings, said on Tuesday that the semiconductor industry is pumping in $2 billion on a weekly basis which will lead to a 50 percent increase in production. But, this is going to take time and the supply crunch will persist in the current scenario.

“Where are we going to be next Christmas? I expect [these] supply chain constraints to be a little better but it won’t be completely fixed,” Segars said at the Web Summit in Lisbon reported AFP. “This isn’t a short-term problem with a short-term solution.”

The worldwide crisis disrupting multiple sectors has been attributed to pandemic lockdowns, along with natural disasters like droughts and fires. Some supply chain observers are also pointing at a situation where customers are stockpiling supplies, which they claim may have a negative impact going ahead like uneven allocation and higher pricing.

Since the pandemic situation has eased, there has been a revival in global trade and related traffic. But, a lack of drivers, shortage of shipping containers and warehouses, and port congestion have triggered logistical and supply problems especially with the holiday season around the corner.

“This is going to take quite a long time to sort out,” Tim Huxley, chief executive of Hong Kong-based Mandarin Shipping, told CNBC on Tuesday.

Even though the semiconductor industry is known for being cyclical, Segars said, “We’ve been in situations before where there has been in some cases oversupply, in other cases undersupply, but it’s never been like it is right now.” Some delays now last for more than one year which he said is “unprecedented.”

Nintendo is on course to make 20 percent fewer Switch game consoles this year, while Apple failed to meet EPS estimates for the first time since 2016 due to chip supply issues. Steven Levy, editor-in-chief at Wired, said on CNBC’s Closing Bell that this was a larger message for the whole economy. “If [Apple] can’t deliver them, what about the other companies that aren’t as well connected?” Levy asked.

Automobile Manufacturing

Reports from automobile manufacturing powerhouse Germany reveal new car registrations in the country fell 35 percent to around 179,000 vehicles in October. This was mainly due to production bottlenecks caused by chip shortages.

Czech-based Skoda, owned by Volkswagen, will make 250,000 fewer cars than anticipated in 2021. Earlier in the year, the manufacturer said many cars were almost done but could not be delivered on time because they were awaiting chips.

Meanwhile, BMW sold 90,000 fewer vehicles this year but managed to increase its revenue by 4.5 percent mainly through increasing prices. Profit margins and year-end goals are expected to be met by reducing the number of employees.

Microchip shortages have resulted in U.S. vehicle sales registering recession-level sales figures. September’s 7.51 million vehicle assemblies was the lowest since 2010. These factors have contributed to increasing prices for cars, which have, in turn, contributed to the inflation hike.