The great global semiconductor squeeze

Around 40% of the manufacturing cost of a car goes on electronics

(Image credit: © Fairfax Media via Getty Images)

published 2 April 2021

Delays in the Suez Canal will do nothing to ease the global “supply-chain crisis”, says George Stahl in The Wall Street Journal. The semiconductor industry is looking particularly stressed. Computer-chip shortages have been driven by the demand side of the market, says Mark Sweney in The Guardian.

Lockdowns have brought soaring sales of games consoles, televisions and home computers. Meanwhile, modern cars need more chips than ever before (40% of the manufacturing cost of a new car goes on electronics).

“Nearly every” big carmaker has been forced to cut back on production or even temporarily close plants for want of chips, says Stahl. Toyota says that it is not just semiconductors that are in short supply: it has also been hit by a dearth of plastics after freak weather hit the Texan petrochemical industry in February. Carmakers will pay a steep price for underestimating vehicle demand, says Bloomberg. Globally they could lose a combined $61bn in sales this year.

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The semiconductor market is cyclical and had been on a downswing before the pandemic triggered a sudden spike in demand. Politicians in Washington, Brussels and Beijing are concerned about the security of semiconductor supply, which is dominated by companies from Taiwan and South Korea. Industry behemoth Apple was forced to delay last year’s launch of the iPhone 12 while it scrambled to source enough chips, says Sweney.

And Samsung, itself the world’s second-biggest semiconductor maker, is struggling to find enough of the widgets for its own smartphones. The shortages have triggered a price spike but new supplies won’t arrive soon: “It can take up to two years to get complex semiconductor production factories up and running.”

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.