Global Chip Shortage Now Hitting PC and Smartphone Makers, Says S&P
Moneylife Digital Team 20 April 2021
The heavy toll that chip shortages have inflicted on the auto industry is now broadening to other sectors. Exploding demand and factory outages are creating acute chip shortages and the effect of supply shortfalls is spreading beyond carmakers to any firm that relies heavily on semiconductors, such as smartphone and personal computers (PC) makers, says S&P Global Ratings. 
Clifford Kurz, credit analyst at S&P says, "The chip shortage may cap the revenue growth of some PC and smartphone makers, and impede their ability to capitalize on surging consumption."
In its report "Global Chip Shortage Engulfs A Growing List of Tech Players," the ratings agency says, chip shortages have so far been mainly about power management integrated circuits (ICs) and driver ICs. 
Companies outsource production of the chips to older fabs to control costs. And as these older fabs already operate at a high utilisation, they have less flexibility to meet sudden surges in demand. These chips are used in everything from smartphones to automobiles.
Chip demand has exploded, S&P says adding, "This is driven by working-from-home arrangements, rising interest in chip-intensive electric vehicles, the rollout of 5G cellular services, automation trends, and the like. Our economists have also noted the tendency of people to replace their use of offline services with the consumption of goods during the pandemic." 
According to the ratings agency, the chip shortage may cap the revenue growth of some PC and smartphone makers, and impede their ability to capitalise on surging consumption. It says, "Chip vendors need to manage rising costs as fabs increase prices amid a surge in demand for their services." 
"We expect chip vendors to be able to largely pass on these higher costs to customers. Original equipment manufacturers that are unable to procure sufficient components to meet orders for their products will feel more pain," it added. 
According to S&P, the supply issue is most severe in the auto industry and many carmakers have announced factory shutdowns and prioritised production based on an entity's ability to procure critical parts. 
Other sectors now also being squeezed include some smartphone manufacturers, the ratings agency says, adding, even some home appliance producers in China are reporting production issues related to chip shortages.
Recently, Qualcomm Inc acknowledged that its output was not meeting demand, hitting Android phone-makers such as Xiaomi Corp that rely on Qualcomm's chips and modems.
"Our base case is that the spike in demand will ease in the second half of 2021, returning the supply chain to equilibrium. However, there's always a chance that demand does not abate or that a fresh supply shock could trigger yet more acute shortages," says Mr Kurz.
S&P says, while it anticipates no ratings change related to the shortages for now, chip shortfalls will be the major variable affecting the revenues and profits of key global entities that it cover, for at least the next 12 months.
The ratings agency also sees broad demand keeping semiconductor firms at high utilisation.
"In semiconductors, strong demand and high utilization will lift revenues and margins, in our view. Demand is broad, with strong orders coming from high-performance computing, autos, and communication, etc. This is across technology nodes--both mature (28 nanometres and above) and advanced (14 nanometres and below). Good revenue growth should help to offset high capital expenditure (capex) to expand capacity," S&P concludes.
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