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Impact of the semiconductor shortage on various industries
Impact of the semiconductor shortage on various industries

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In Blog 1, we discussed the details about the semiconductor crisis and the underlying causes for the shortage.

In this blog 2, we will ascertain the impact of this crisis and its effects across various sectors.

As we know that the ongoing shortage of semiconductor chips or integrated circuits (ICs) has sent shocks across the world and put pressure on the IC supply and pipelines across the world. It is estimated that as many as 169 sectors are affected due to this semiconductor crisis. Global semiconductor sales increased by 6.5% in 2020 due to various factors, with the chief being the covid pandemic.

In this blog, we will understand its impact on some of the main sectors.

 

Semiconductor 2

 

1. Automotive – Automotive industry seems to be one of the worst affected by the shortage. ICs are needed in many car components such as digital speedometers, infotainment systems, computerised management of engines and driver assistance systems, etc. Due to the pandemic, auto sales fell by 80% in Europe, 70% in China and 50% in US. The demand for vehicles reduced and automotive OEMs reduced their orders for the ICs, anticipating less future demand due to shutdown of manufacturing facilities, due to the lockdowns across the world. With the demand picking up again and the nature of just-in-time model of automotive sector, the chipmakers could not cope up with the demand. As per HIS Markit projections, there are expected to be 6.3-7.1 million fewer vehicles due to the semiconductor shortage. OEMs are also likely to face shortages well into the next year due to disruptions in IC supply.

Maruti Suzuki intends to cut its vehicle production by 30-40% in August, causing a loss of 50,000-60,0000 units in production and an expected revenue loss of INR 2500-3000 crore. Mahindra and Mahindra is yet to begin the full production of XUV700 due to chip shortage, and an expected 8000 semi-finished cars await semiconductor chips in Mahindra’s Chakan plant.

Toyota is cutting back production by 40% in September. The shutdown is expected to run until the end of September. It is expected to impact 14 Toyota factories in Japan and 27 out of 28 production lines, with major impacts expected in Japan, Europe, China, and the US. Upto 360,000 vehicles are expected to be lost due to the closures, with 80,000 lost in the US, 40,000 in Europe and 80,000 in China.

Nissan is cutting its production by 500,000 less vehicles, Renault-Nissan output is going to be affected by 20-40%, Ford Fiesta’s production was halted from August 23-28 in its Cologne plant. Hyundai shortened hours in its Alabama plant in US between August 17- 19 August due of the supply shortage. The same factory, in Montgomery, fully suspended work for five days and one week earlier in June and July, due to the shortage. Volkswagen Group's Wolfsburg factory will restart work after its annual summer break with only one shift from 23 August.

 

2. Personal computing devices such as computers, laptops, tablets, smartphones– With remote working, online schooling etc., caused by lockdowns due to the pandemic, the demand for electronics, such as computers, laptops, tablets, smartphones etc, increased drastically. According to International Labour Organisation, number of employees working from home has increased by 300 million and according to World Economic Forum, around 1.3 billion students began online learning from home. This massive shift to online activities led to a 11.2% year-on-year growth in the sales of desktops, laptops, and other devices in Q2 of 2020, according to IDC. All these devices extensively utilize ICs, which put pressure on the already tight supply.

 

3. Gaming consoles and video cards – Due to the pandemic, recreational activities shifted online due to lockdowns. Gaming consoles witnessed a 155% increase in sales and products like PlayStation5 and Xbox Series X have already been in short supply over the summer. The semiconductor shortage, an important element in the consoles, further tightened the supplies, leading to massive shortages.  

In addition, due to increase in cryptocurrency mining and the effects of the pandemic, the global IC shortage is making getting new video cards, used in PCs and consoles, much difficult.

 

4. Consumer goods – FMCG goods such as televisions, refrigerators, washing machines, etc., are all affected by the chip shortage. Samsung recently said that the chip shortage has hit its television and appliance production. According to Goldman Sachs research, prices of many electronic goods and components could increase further 1-3% in the near future.

 

5. Aerospace, civil, military and defence sector – Aerospace and defence is one of the worst hit by the pandemic. ICs are used in essential components such as electronics, panels, chips used for weapon systems etc. The semiconductor shortage is impacting this sector severely.

 

6. Broadband internet and cable TV companies -Due to remote working, online learning, and lockdowns, as a result of the pandemic, and people spending a lot of time indoors. This led to increase in the demand of good internet connectivity and broadband services. Many began to update their home connections and upgraded their devices and equipments to receive full benefits of their broadband. The semiconductor shortage has further put pressure on this sector as semiconductor chips are critical for high-speed broadband connectivity. Wifi routers, cable networks and new networking equipments are expected to be hit by this shortage.

 

7. Power sector - turbines and solar ­– Semiconductor chips form an integral part of the electronic parts in the energy sector. With a growing emphasis on sustainability and focus on finding cleaner, alternate sources of energy, the IC shortage is expected to affect the power sector significantly in the near future.

 

8. LED lights – Mini LED lights are used in many appliances and consumer electronics like television and smartphones. This sector is expected to face the aftershocks of the global semiconductor shortage.

 

These are just a few of the 169 industries impacted overall by the semiconductor shortage. There are many others which are affected by this ongoing crisis.

In the final blog of this series - Blog 3, I will share insights on the road ahead and how are companies and governments across the world tackling this situation and taking corrective action.

To read Blog 1 on understanding semiconductor crisis and the causes of this crisis, please follow the link https://community.nasscom.in/communities/engineering-research-design/global-semiconductor-crisis-series

 


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Vandhna Babu
Chief of Staff - President's Office

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