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Chip shortage to extend into 2024: Gavekal

Equities

Gavekal Asia’s research analyst Vincent Tsui released a report titled, ‘The never-ending chip shortage’ which talks about the grim reality that the world’s semiconductor shortage is not going away anytime soon.

In a highly competitive industry that takes extreme skill and precision technology to perfect there are only a few players that have mastered chip manufacturing. The main one is Taiwan’s TSMC that produces the majority of the world’s supply.

The pandemic together with a few leaps forward in technological advancements, and global semiconductor supply has turned sluggish. Auto manufacturers had to cancel orders for new models during the pandemic thinking that it would reduce demand pressure. Instead, demand grew tenfold due to consumer electronics manufacturers producing tables, laptops and iPads for the added demand caused during lockdown.

  • Fast forward to today, and Tsui says ‘I think [the shortage might end] in 2023, 2024 – or even later.’

    The chip shortage was billed as a short-term one off event but looking back on history these chip shortages seem to occur every few years. The same boom-and-bust cycle would repeat itself separated by four or five years and each time chip maker forecasts would be out. A shortage would follow.

    The other issue, besides the pandemic, is that digital products used today are more advanced than yesterday and require even more chips. With only one main producer, these supply constraints are also causing the bottleneck.

    Quoted on Citywire Tsui says, “The supply bottlenecks are not only troubling automakers. Much of the current shortages affect commodity chips, relatively unsophisticated gizmos needed for sensors, display units, power supply controllers and the like contained in a myriad of products. Yes, Tesla is having trouble sourcing chips for airbags and seat belts. But Whirlpool is also struggling to get hold of microcontrollers for its refrigerators and washing machines.”

    The shortages seen today, are a result of poor planning and bad forecasting. Before the pandemic, suppliers had little incentive to build expensive new manufacturing plants given the slim margins earnt versus the capital invested.

    There is however some light at the end of the tunnel.

    Last month, Intel announced the construction of two $20bn chip factories in Arizona, and now, construction has officially begun. Intel says it is focused on getting the U.S. semiconductor industry back into world-class shape. However, TSMC has a clear monopoly on the industry and leading-edge in advanced chips. It makes it hard for new competitors to catch its lead.




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