Consumer prices are expected to increase as a shortage of semiconductors slows production at companies ranging from Samsung to Ford.
As a global shortage of semiconductors worsens, consumers are seeing price increases and product shortages ranging from televisions and cell phones to cars and video game consoles.
Since last year, the shortage of chips, the "brain" of every electronic device on the planet, has been constantly deteriorating.
When the coronavirus pandemic first struck, factories shut down, causing a temporary shortage of supplies. Despite the fact that production has returned to normal, the pandemic has caused a new surge in demand fueled by changing habits.
Demand has been fueled by automakers' investments in tech-heavy electric cars, a surge in TV and computer sales, and the introduction of new game consoles and 5G-enabled mobile phones.
Even Apple, a $2 trillion corporation that spends $58 billion annually on semiconductors, was forced to postpone the release of the much-anticipated iPhone 12 by two months last year due to the shortage.
“Chips are everything,” says Neil Campling, a Mirabaud media and technology analyst. “Right now, there's a perfect storm of supply and demand factors at work. But, in general, there is a new level of demand that cannot be met; everyone is in a state of crisis, and it is only getting worse.”
Due to chip shortages, Ford recently canceled shifts at two car plants and said profits could be hit by up to $2.5 billion this year, while Nissan is halting production at plants in Mexico and the United States. General Motors has warned that it could lose $2 billion in profit. Because of the semiconductor supply problem, Sony said last month that it may not meet sales targets for the new PS5 this year. Sony, like other console manufacturers, has struggled with stock shortages over the last year. Supply issues are expected to last until the second half of the year, according to Microsoft's Xbox.
However, Samsung, the world's second-largest buyer of chips after Apple, has provided the most telling example of the semiconductor crisis. Despite being the world's second-largest chip producer, the company said earlier this week that the shortage may force it to delay the launch of its high-end smartphone.
“It's incredible that Samsung, which sells $56 billion in semiconductors to others and consumes $36 billion in its own, is considering delaying the launch of one of its own products,” Campling says.
Samsung's co-chief executive, Koh Dong-jin, who also leads the company's mobile business unit, brought up an important point, saying that there is a "serious imbalance" in who gets the limited supply of chips.
When the market rebounded last year, car makers who cut chip orders as vehicle sales plummeted found themselves at the back of the line when they tried to reorder. The global automotive industry spends about $37 billion on chips, with the largest players like Toyota and Volkswagen spending more than $4 billion each, making them relative minnows for semiconductor suppliers.
“Autos have been the hardest hit because they were the last to arrive; if Apple is spending $56 billion per year and growing, who are you going to keep supplies going to first?” Campling confirms this.
The chip shortage is expected to last for some time. Complex semiconductor production factories can take up to two years to set up, and manufacturers are in the process of raising prices for the second time in less than a year.
“There is no sign of supply catching up with demand, and prices are rising throughout the chain,” Campling says. “This will have an impact on people on the street.” Expect higher prices for cars and phones. This year's iPhone will not be less expensive than last year's.”
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