Chip firms see supply tension even with production boost in 2022

Highlights

• Automakers like Ford Motor Co and General Motors anticipate the semiconductor shortage to improve in the second half of 2022.

• But the supply tension is expected to persist even with a production boost this year.

• The House on Friday approved the US$350 billion America Competes Act, including funding of US$52 billion to strengthen the domestic semiconductor industry.  

The semiconductor supply constraints have vexed the automotive industry over the past year but will 2022 be any different.

Global carmakers like Ford Motor Co (F) and General Motors (GM) expect improvement in the second half, but chip firms predict the supply tension to remain even with a production boost.

The crisis began after the coronavirus epidemic raised its ugly head in 2020. Despite several rounds of the capital boost to bolster production, supply, and workforce, the effect persists.

The US House of Representatives on Friday approved a US$52-billion funding to strengthen the domestic semiconductor industry as part of its US$350 billion America Competes Act.

The aim is to make the country self-reliant in the production capabilities of some key supplies. The government is grappling with difficulties to bring back the American industries on track. It is spending trillions of dollars to revive the economy battered by the health crisis.

Semiconductors are used in almost all modern industries, from electronics, industrial, aerospace, and technology-heavy enterprises, besides automotive.

These sectors bore the brunt of the shortage, limiting economic activity and increasing the economy’s susceptibility in the face of a health emergency. 

As a result, many industries, such as automotive, could not fulfil the backlogs, and with new orders pouring in, companies are stressed to the hilt. Still, the semiconductor industries saw record sales in consecutive quarters, lifted by strong industry demand for electronic circuits.

Qualcomm Incorporated, one of the country’s leading semiconductor makers, reported 30% YoY growth in revenue in the first quarter of 2022, driven by a high equipment sales volume.

The San Diego, California-headquartered Qualcomm designs chips for smartphones. The company raised the revenue guidance after the results.

Likewise, electric vehicle maker Tesla, Inc (TSLA) reported a 65% increase in revenue YoY.

EV companies need semiconductors for various interactivity features accessed by the driver and the passengers. They are also required for batteries and power trains.

Tesla said in the earning release the semiconductor supply would remain an issue in 2022, and the company would not launch any new model this year. Other auto companies were trying to restock chips to keep the production going.

General Motors (GM), however, expects the semiconductor shortage to improve in the second half. Similarly, Ford Motor Co also anticipates improvement after low vehicle sales in Q1.

The Michigan-based Ford is optimistic about the supply as it has partnered with California-headquartered GlobalFoundries to reduce its dependency on Taiwan’s TSMC.     

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Source - pixabay

What are global chipmakers saying 

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Germany-based Infineon Technologies, one of the world’s leading chipmakers, has painted a gloomy outlook. It expects the problem to pester in 2022 even with the production increase.

Another chipmaker, NXP Semiconductors, also agrees with the outlook.

Infineon, however, added that the demand-supply imbalance could improve in the second half but not for the more sophisticated chips used in the auto industry. 

Infineon said the demand for mature chips may not get fulfilled this year, but it gives an opportunity for the semiconductor companies to cash in from the orders for regular chips.

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Finally, according to the Semiconductor Industry Association (SIA), the modern semiconductor manufacturing capacity in the US is down to 12% from 37% in 1990. To improve the situation, the US House of Representatives hopes the new funding will help fill the gaps in the industry.