- Experts believe the chip shortage is set to continue through 2021 and even into 2022.
- The shortage will cause supply constraints in more than just the auto industry.
- Despite increasing chip supply, long lead times mean meeting demand this year may be impossible.
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Semiconductors are some of the most critical components for the technology the underpins much of modern life.
Smartphones, PCs, electric vehicles, and even your fancy new refrigerator all use the chips to operate. When the supply of these vital products falls, it can become a big issue.
Over the last year, the semiconductor shortage has caused car companies to halt production, made getting graphics cards for PCs headache, and it's led companies like Apple to face significant supply constraints in its rollout of new products.
Semiconductors are so important that they can even create national security issues when drones, fighter jets, and other critical military components are affected.
That's one of the reasons why President Biden met with 20 top executives on Monday to discuss what can be done to fix the chip industry's supply constraints and make sure something like this doesn't happen again in the future.
President Biden has committed to helping the industry fix the semiconductor shortage with his new infrastructure bill. The $2 trillion infrastructure and jobs package will include some $50 billion for semiconductor research and production.
Still, despite help from the US government, experts say the global chip shortage is set to drag on. Below, Insider details how long four experts expect the crisis to continue and what it could mean for markets.
Ted Mortonson, Baird technology desk sector strategist
In an interview with Insider on April 6, Baird's Ted Mortonson said he believes the global chip shortage will continue through the rest of the year.
The tech sector strategist said rising demand from the cloud sector, the 5G rollout, telecommunications firms, EV makers, and more is one of the main reasons for the shortage and noted that new capacity will need to come online to offset demand.
Mortonson highlighted semiconductor firms' recent investments into capacity including Taiwan Semiconductor Manufacturing Co.'s $100 billion investment over the next three years that the company says will "increase capacity to support the manufacturing and R&D of advanced semiconductor technologies."
However, the strategist said that despite new initiatives, much of the additional capacity won't come online until the end of the year. Mortonson also noted that most semi companies have instituted "non-cancellable orders" and that lead times range from 15 weeks to over 50 weeks in some cases.
Mark Fields, former Ford CEO and senior advisor at TPG Capital
Mark Fields sat down with CNBC on April 9 to discuss the effects of the global chip shortage on the auto industry. Fields said auto manufacturers lost about 3 million units due to COVID in 2020 and he expects the chip shortage may be just as destructive.
"Through the first quarter, through various forecasts, it looks like about 700,000 units were lost…you can just do the simple math and you could see that the losses could approach the level of the Covid losses for last year," the advisor said.
Fields also said automakers are trying to maximize their production value by focusing on selling their highest margin vehicles, but that it's really a "game of whack-a-mole" given the breadth of supply constraints.
Fields added that the situation for automakers should get better in the second half of 2021, but the industry won't fully recover until well into 2022.
Ganesh Moorthy, chief executive officer at Microchip Technology
Ganesh Moorthy, the CEO of Microchip Technology, spoke with CNBC on Monday about the chip shortage and said it's the worst crisis he's seen in the industry in 40 years.
The "imbalance between supply and demand has never been this acute in all my history in this industry," the CEO said.
Moorthy also said that he believes supply constraints will last through the year and "most likely" continue into next year.
The CEO added that the chip shortage has been "brewing for some time" and said that it started with tariffs during 2018 which caused demand to fall. In response, Moorthy says many chip manufacturers leaned out inventory and idled some factories in response.
Then when the pandemic hit, a swath of new stay-at-home trends caused demand to skyrocket, leading to the shortage.
Moorthy said that it "takes six months of cycle time from when we say go to when production comes online full force," so he expects the lack of supply to continue moving forward.
Anand Srinivasan, Bloomberg Intelligence analyst
Anand Srinivasan, an analyst with Bloomberg Intelligence, spoke with Yahoo Finance on Monday and said that the chip shortage could persist well into the second half of 2021.
The analyst said investors shouldn't just be worried about their auto industry holdings due to the semiconductor shortage either.
"In the grand scheme of a $440 billion industry the auto business is only 8%, 9% of semiconductors," the analyst said.
Srinivasan is "more worried about other areas where the impact could be larger and it affects a lot more people."
He said a variety of products will be affected by the shortage but argued the two industries he's most worried about are PCs and smartphones, which make up some 70% of semiconductor demand.
The good news for investors is that Srinivasan believes that the lack of supply will stretch out demand, rather than hurting it. "You're not going to go out and buy a bicycle because you couldn't get your Audi A4," the analyst said.
This means that although production might be hurt in the short-term, over the long haul strong demand will remain, according to the analyst.