What Does The Global Semiconductor Shortage Mean For Chip Prices?

As a global shortage in semiconductors becomes severe, consumers are facing price rises for everything from game consoles and cars to mobile phones and TVs. That’s because of the increasing prices of semiconductor chips.

These semiconductor chips are considered the “brain” within all electronic devices, memory solutions, and storage solutions in the world. Their shortage has been progressively worsening since 2020. In the beginning, the issue was only a temporary delay in supplies as factories around the world were forced to shut down due to the COVID-19 pandemic introduced from China. 

But while production is seemingly back to normal now, a new increase in demand triggered by changing habits brought on by the pandemic means that chip prices are rising. The boom in sales of home computers and TVs, manufacturers investing in tech-heavy electric vehicles and launch of 5G-enabled mobile phones and new gaming consoles have all contributed to the increasing demand, and eventually leading to an increase in chip prices.

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The Crisis is Getting Worse For Global Manufacturers 

Nissan has halted output at plants in the US and Mexico, while Ford recently cancelled shifts at two of their car manufacturing plants due to chip shortages. General Motors is facing a hit in the profits up to $2bn this year for the same reason. 

Sony is also struggling, along with other console and memory solutions manufacturers, with chip shortages. The brand reported that they might not hit their sales targets for the new PS5 in 2021 because of this. 

But the most notable example of the chip shortage crisis has come from Samsung, which is the 2nd largest buyer of chips for its products (after Apple) in the world. The company announced they might have to postpone their launch of a new smartphone due. And this is despite the fact that Samsung also happens to be the 2nd largest producer of semiconductor chips in the world.

Think about it: Samsung not only consumes $36bn of semiconductors itself but also sells $56bn of them to others. And it now estimates that it may need to delay launching one of its own products. Another thing to note is there is a significant imbalance in the pecking order of who is getting the limited supplies of semiconductors.

Industry Repercussions of Semiconductor Shortage

Car manufacturers are finding themselves at the back of the queue when they attempted to reorder the chips once the market got back on its feet. Manufacturers had to halt chip orders as car sales fell in 2020.  The biggest players in the global car industry, Volkswagen and Toyota, buy $4bn worth of chips, and the entire automobile industry buys nearly $37bn each year.

This makes them “small fish” for semiconductor suppliers since brands like Apple spend $56bn annually and the number is only growing. The shortage in semiconductor chips is here to stay at least for the foreseeable future. Experts say that it may take up to 2 years to get chip production factories up and running again. As a result, manufacturers are planning to raise the prices significantly for the second time in less than a year.

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