Semiconductors will go from famine to feast

A global shortage of semiconductors has collided with an unprecedented surge in demand. But the chip industry has always been highly cyclical.

A global shortage of semiconductors is affecting everything from smartphone sales to car manufacturing. Disruption caused by Covid-19 has collided with an unprecedented surge in demand for electronics, says Wallace Witkowski for MarketWatch. Research firm IDC reports that PC sale volumes are expected to advance by 18% this year. Global shipments could hit 357.4 million computers, beating the record set in 2011. 

Car makers have been particularly badly hit by the shortages; many cancelled chip orders when the pandemic hit, only to be surprised by the strength of demand for new vehicles. The shortage means it’s a good time to be a chip maker. The PHLX Semiconductor Index has gained 92% in a year. Building a new manufacturing plant can take two years and costs several billion dollars, so analysts say the shortage is likely to persist at least into next year. 

But don’t buy into the boom, says Daniel Tenreiro for National Review Capital Matters. The chip industry has always been highly cyclical. Periodic shortages provoke new investment, which leads to excess supply and plunging prices. This time governments are also getting in on the act: the US, EU and China are all creating subsidies to ensure that they can have a sovereign supply of chips. In a few years we could have a glut of silicon.

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