Tech sector hit by global chip shortage: Bain & Co

As the demand for chips continues to outstrip supply, carmakers are no longer the only ones bearing the brunt of the impact.

The global chip shortage, which is expected to last till next year, has now extended to the tech industry, according to partners at Bain & Company in a webinar yesterday.

The automotive industry pulled back orders in the wake of the coronavirus pandemic while other industries were increasing orders.

As such, capacity slots were "reallocated to much higher margin industries", said Mr Tom Wendt, a Bain & Company partner.

Since March and April, the effects have caught up with the tech industry. Consumer electronics (PCs, smartphones and others) account for 70 per cent of the semiconductor market versus 10 per cent from the automotive industry.

Players such as Apple, Sony or Nintendo - which were expected to be better prepared in their semiconductor supply chain management - started to see the effects at a production level, said Mr Wendt. "It started impacting almost every other industry from toasters and washing machines to large equipment manufacturers," he said.

This was in part due to the pandemic, which had dramatically spurred demand from semiconductor-consuming industries. Demand had grown some 30 per cent to 40 per cent, a growth that existing facilities found challenging to keep up with.

Also contributing to the shortage were the highly complex multinational supply chain and long lead times for key activities.

There should be a shift in focus towards adding capacity to the industry rather than reallocation of resources, said Mr Peter Hanbury, another Bain & Company partner.

Indeed, there has been significant efforts from major players to increase capital expenditure in order to boost manufacturing capacity. Taiwan Semiconductor Manufacturing, for instance, raised its capital expenditure to US$30 billion (S$40 billion) in April. Intel is spending an estimated US$20 billion to build new wafer fabs in Arizona. "But all those initiatives will not really give us any short-term relief because it takes months and years to add capacity to an existing fab or build a new fab entirely," said Mr Wendt.

In the short term, players are figuring out where their shortages are, finding ways to ramp up supply chain, and engaging in less disruptive research and development testing in order to get "a couple of extra chips" on items facing critical shortages, said Mr Hanbury.

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