As chip shortage starts to ease, factory-level fixes will take longer

The chip shortage that left laptops in short supply and new cars without fancy features like heated seats isn’t entirely in our rear-view mirror, but at least it’s no longer looming in our headlights.

“The global chip shortages situation appears to be modestly improving,” emailed Josep Bori, research director at GlobalData’s London office. He credited that to the easing of Covid-19 lockdowns at factories outside China, plus slower consumer demand caused by economic deceleration.

He said prospects looked brightest for computers and smartphones, mainly because we’re past early-pandemic gadget spending sprees that led PC and phone manufacturers to buy out production capacity at semiconductor foundries, which then short-changed automotive and industrial users.

Mark Vena, CEO and principal analyst at San Jose, Calif.-based SmartTech Research, agreed, saying “I think the PC category is going to be relatively okay.”

He credited all the practice the likes of Apple, Dell and HP have had navigating supply-chain constraints. “They know how to manage inventory,” Vena said.

Those automotive and industrial chip customers, however, face continued challenges. For one thing, Bori said, the less-advanced chips they use aren’t as profitable for chip vendors as the semiconductors going into computers and phones.

“We believe over time this is all going to (normalize), but it will likely be a bumpy road and at different paces for different sectors,” he wrote.

The passage of the CHIPS and Science Act this summer, with some $52 billion in subsidies to encourage U.S. production of chips, may help grade that road.

“This is a long-term investment,” said Alexandra Seymour, associate fellow in the Technology and National Security program at the Center for a New American Security in Washington. “We want to shore up resiliency and make sure we have that capability at home.”

New chip fabrication facilities are already going up or being drawn up by companies like TSMC, GlobalFoundries and Intel; the last latter said the CHIPS Act led it to expand a project in Ohio.

Bori estimated that these new plants will take one to two years to start production but warned that “the US may struggle to find the skills domestically and might take longer to get these fabs up and running.”

Chilling US/Chinese relations may further complicate matters. On Oct. 10, the Commerce Department announced sweeping restrictions on the export of advanced semiconductor manufacturing equipment in China that have already led some U.S. firms to pull back on business with Chinese firms.

Calling that ban “strong action that needed to be taken,” Seymour noted that it could have effects beyond its intended aim of slowing China’s development of advanced semiconductors with potential military applications, as companies seek to avoid getting caught by secondary provisions of that regulation.

For example, Nikkei Asia reported Oct. 17 that Apple had scrapped plans to use cheaper Chinese-made memory chips in some iPhones. Bori suggested that other non-Chinese firms will need to make their own decisions.

“Remaining neutral will become increasingly difficult for companies based in Taiwan, Korea, the Netherlands or Japan,” Bori said.

Seymour pronounced herself long-term optimistic, predicting, “We are going to see more resilience within our supply chain.”

But remember that the outsourcing-heavy tech economy the US now seeks to rebalance started when business leaders thought it made obvious economic sense in the prior century.

“All that stuff didn’t happen five years ago,” said Vena. “All that stuff happened in the ’80s.”