Semiconductor shortage disrupts supply chains

Over the past year, businesses around the world have had to deal with many well flagged supply-chain and logistical issues, such as rising container freight costs and supply bottlenecks. The latest setback is a shortage of semiconductors, triggered by a confluence of factors on both the demand and supply side.

Demand for semiconductors has been boosted by the diversion of spending away from services to goods, and has been exacerbated by the growing range of products that need these critical components to work, according to analysis by Oxford Economics.

Attempts by Chinese firms to stockpile some semiconductor products in anticipation of the US-China trade war curbing access to future supplies have made matters worse.

The increasing use of semiconductors in manufactured goods, from electric vehicles to mobile phones, means the shortage may have more widespread sectoral implications than in the past. The impact is likely to be compounded by already low inventory levels in some sectors such as electronics which are especially reliant on semiconductors.

Typically, semiconductor shortages hit smaller firms first and hardest. This time, however, a number of large multinationals have already announced the scaling back of production, suggesting that few sectors will be left untouched.

Samsung has warned it is “rebalancing” production to divert semiconductors to where they are most needed. Meanwhile, Microsoft and Sony have reduced production of their new games consoles due to shortages.

Automakers including Ford, Toyota, Volkswagen, and BMW have all reportedly cut planned production. However, weaker production in industries such as the auto sector is likely to be offset to some degree by higher output in other chip-hungry sectors.

In this respect, supply constraints aren’t automatically a reason to become more pessimistic about global prospects, even if they do have significant sectoral impacts, it concludes.