Several GM plants are pausing production due to chip shortages. Bloomberg Intelligence Analyst Anand Srinivasan joins Yahoo Finance Live to discuss.

Video Transcript

[MUSIC PLAYING]

AKIKO FUJITA: Shares of General Motors in the session down slightly there, after the company announced it is extending its production halt at its North American factories as it struggles to shore up its chip supply in the face of a global shortage. The company saying three additional plants will now be shut down and other factory halts extended. Let's bring in Anand Srinivasan. He is Bloomberg Intelligence analyst. Anand, it's good to talk to you today. Give me a sense of how you're looking at the timeline right now about how long the shortage is likely to extend and ultimately halt the production for carmakers like GM.

ANAND SRINIVASAN: Good morning. Thank you for having me. So our initial take was that this would last through the July time frame. But it appears, just given the broadening nature of the shortage, as well as the depth of the shortage, that this might persist for well into the second half. And remember that in the grand scheme of a $440 billion industry, the auto business is only about 8%, 9% of semiconductors. So in the grand scheme of things, as much noise as there is from the auto industry, we're more worried about other places where the impact could be larger, and it affects a lot more people.

Remember that we make only about 100 or so million cars, but we ship about a billion for phones every year. So on a relative basis, we are more worried about areas where there is higher volume and there is broader impact. The severity of this is both from a depth and a breadth perspective, right? So-- and regardless of whether it's a particular CPU that's a very expensive part in a phone or a PC that is affected, or it's a $1 display driver that is affected, you're still not going to be able to ship the product. I think therein lies the concern.

And then from a breadth of product, we're also seeing that a variety of different kinds of chips are being affected. So you're robbing Peter to pay Paul here at TSMC moving autos to semi-- or to smartphones to PCs. And what that does is you are shortchanging potentially the auto segment or the industrial segment. So you're going to see a variety of products being affected. But generally speaking, higher volume companies, larger, more profitable products will be less affected then lower volume products, lower volume companies, and less profitable products.

We think industrials-- potentially if you're waiting to buy that high end refrigerator, you're probably going to have to wait a long time. But one of the nice things about it, the positive outcome of all of this, is that this is going to stretch our demand. You're not going to go out and buy a bicycle because you couldn't get your Aldi A4, right? So you're going to have to wait and potentially 4Q of this year, potentially first half of next year. And it's not like one particular vendor is going to be disproportionately unimpacted versus another. Everybody's going to be impacted. It's just a question of magnitude and timing.

AKIKO FUJITA: Anand, let me just pick up on that point you made. Because as bad as the headlines are within the auto industry, you're saying things could get much worse on the devices side of things. You know, what particular area are you talking about? People are looking at, for example, their smartphones and other devices, saying, well, what's the delay that's waiting on that end?

ANAND SRINIVASAN: Yeah, so the industries, the two biggest industries who are most worried about are the PCs, et al, which is PCs, both desktops and notebooks, as well as servers, and then smartphones. These two industries couple to make up about 70% of semiconductor demand. So where, on a relative basis, that's where if any-- if there is a demand inflection in smartphones or if there's a demand inflection, for example, in servers in the second half, which we're very worried about, again, worried about a positive inflection here coming from the cloud or from corporate IT demand spiking, what that's going to do is that's going to shift sort of product and production towards that end.

And then there's going to be some unintended effects that both for that industry and for customers in that area, as well as other areas. But those are the areas where there could be some hot spots, you know, cloud server demand being unsatiated, potentially companies like HPE being impacted, potentially companies Seagate and Western Digital being impacted. So those are sort of we're a little bit more nervous in that area.

ZACK GUZMAN: Yeah, I mean, we heard, I think it was Ford, earlier kind of forgoing chips in certain models of the cars. And you can probably get away with that in a car-- probably harder in a router or a phone, as you're describing there. But your peers at Bloomberg kind of walk through the lead times now. For routers out there, 60 weeks lead time. When you look at orders writ large, 16 weeks lead time as of the beginning of March here.

I mean, I thought this problem was kind of well documented for a while here. We knew it was going to be bad. But it sounds like it's getting worse. So I mean, how dire could the situation get here if something's not done? And do you foresee the potential need for maybe a chip czar to come in here and start rationing to these projects to make sure that there's enough to go around?

ANAND SRINIVASAN: No, that's a very good question. Look, at this point, what we're trying to definitely do is you're prioritizing who gets what, right? At this point, everybody is going to get shortchanged. It's a question of, how badly are you going to get shortchanged in terms of magnitude? How badly are you going to get price pinched? And how far out are you going to get your product, right?

So on a relative basis, remember that networking is a relatively slow-moving industry. And demand there sort of takes a little time to ramp up. So if we're thinking of transitioning our next generation of top of the racks switches, core routers and switches, you could potentially push out those transformations, as important as they are, to the out quarters or even the out years, right? And you're going to see that be impacted.

In the near term, to your point about a chip tsar or sort of rationing, there's not a whole lot you can do, right? So this is actual production. You can maybe tweak your production foundries to produce 5% more, 10% more. But you're not going to be able to produce 15%, 20% more, even if you were to invest pretty aggressively in CapEx to try and produce that amount.

Tools for producing chips are on back order. These are 12 to 18-month lead times for the tools to produce chips. And it takes a little while to ramp up the volume production with these things. So even if TSMC was to certainly turn on the CapEx spigot, we're talking end of 2022, mid 2022, where you can have a serious ramp-up in supply. And that's not going to help the near-term shortages. So in the near-term, I'm not so sure that there is an out in this.

AKIKO FUJITA: Well, we'll have to end on that not so positive note. Anand Srinivasan, Bloomberg Intelligence analyst, it's good to get your insight.