Chip shortage is unlikely to ease anytime soon: Reports

The spread of the delta variant of Covid-19 in ASEAN countries with low vaccination rates, coupled with China’s stringent zero-tolerance Covid strategy, has resulted in a semiconductor chip shortage that is unlikely to be resolved soon, says a report. China’s strict policy means restrictions and closure of factory and ports.

Production hit by Covid

The chip shortage is likely to continue to affect sectors such as automobiles, and shortage of raw materials and unavailability of containers have further increased the lead time – the time taken between ordering a chip and its delivery- according to a report by Nomura quoted by Business Standard.

Countries such as Vietnam and South Korea, which are reeling under the Delta variant, and China, where strict measures against the spread of the pandemic have been taken, are especially hit, the report states.

The Nomura report said Asia is home to the world’s global manufacturing powerhouses and therefore if these supply constraints do ease in a month or two, higher downstream product prices could be in store for the Western consumer markets

Another report by Emkay Global, quoted by the business daily, stated that chip shortages are likely to continue in Q2-Q3 of FY22 and then supplies may improve gradually. Lead times are likely to fall to 18-20 weeks by Q4 and may achieve the 8-12 weeks by FY23-end.”

Bad timing?

Semiconductor chip comes amid reports of inventories running low in several sectors. Quoting the Nomura report, the news report stated that input shortages and low inventories will ‘likely lead to production cuts and delayed shipments in the September 2021 quarter’.

According to another report by The Ken, Taiwan is the epi-center of the semiconductor industry with 63% of the foundries in the country, followed by South Korea (18%) and China (6%), while the remaining 13%  foundries are in other countries across the globe. The global semiconductor industry size is estimated to be worth $439 billion.

In India, the lead time for semiconductor chips for the auto sector has increased to 36-40 weeks from the earlier 8-12 week period, Quoting the Emkay report, the Business Standard reported that the increase in lead time is mainly on account of the spike in Covid-19 cases and restrictions in the Asian countries that are part of the supply chain.