Gaurav Gupta, Gartner Research Vice President, joins Yahoo Finance Live to discuss how the global chip shortage is impacting semiconductors and outlook for the economy.
MYLES UDLAND: All right, well if you've heard us discuss it once, you've heard us discuss it 1,000 times. There is a global chip shortage, and it's pressuring industries from autos to power tools to dishwashers and beyond. How long is it going to last, and how far will the impacts reach?
Joining us now to discuss is Gaurav Gupta, Vice President at Gartner Research. Gaurav, thanks for joining the program today to discuss. You guys recently put out a report just looking at how companies can kind of mitigate this risk and how long these challenges may go on. I'm just curious if you could kind of start with an overview of what your thinking is today on the pressures that this chip shortage is putting across business, and how long the impacts may persist.
GAURAV GUPTA: So at a macroeconomic level, we expect the chip shortage situation to last at least till the first quarter of next year, beginning the second quarter of next year. And we expect the inventories to sort of reach back to the normal levels. And I say at the macro level, because it sort of varies. There are a number of different types of chips. Plus, the impact on different industries will be different.
And even within the same industry, different companies which have different chip requirements or different supply chain and strategies would be impacted in a different way. This started with the automotive sector. But as you just mentioned, now it has spread out to a wireless communications, computer sector, consumer electronics. Pretty much anyone and everyone who is dependent on semiconductors within the technology industry is impacted.
MYLES UDLAND: And Gaurav, I guess another question I have is around, is it innovation in the types of chips that is being created that's creating this bottleneck? Is the bottleneck around demand for chips? I mean, what is kind of at the center of the issue here?
GAURAV GUPTA: So there are a number of sort of series of events which led to this chip shortage, starting with the US-China trade issues, which led to certain companies being put on the Entity List, like SMIC as well as Huawei. So there was some inventory pileup going on.
Then we had the COVID pandemic, which resulted in work and study from home. So there was an unprecedented demand for consumer electronics, laptops, PCs to work from home. The hyperscale guys were building out. Plus the 5G revolution came around. So there was an unexpected demand for semiconductors. Plus, we had a number of isolated events like the Texas winter storm and some fires that sort of created this imbalance between supply and demand. And there are certain chip types where supply is constrained. And these are the more mature technology nodes, where there is minimal effort and focus from the foundries to expand capacity.
BRIAN SOZZI: Gaurav, we just talked to Lattice Semiconductor's CEO. Take a listen to what he said about the shortage.
JIM ANDERSON: When we talk to most of the people in the industry, I think the consensus that I'm hearing is that the supply chain tightness continues through most of the rest of this year and that things start to ease probably in the first half of next year. And so I think it's a bit of-- a few more quarters before we start to see some easing in the supply chain.
BRIAN SOZZI: Gaurav, in that environment, just given it's likely that the shortage could continue into early 2022, are we looking at consumer products shortages outside of autos? I'm talking about phones, laptops, notebooks-- you name it-- as people go back to school this fall.
GAURAV GUPTA: Yeah. So you have already seen some shortages in gaming consoles, as well as it's going to hurt other consumer electronics too. Right? Now, the auto sector was hit first because their demand had gone down, and they had cut down some chip orders. And now they're trying to get back into the queue and competing with these consumer electronics guys.
And the chip shortage has extended beyond just the chips within the semiconductor supply chain. There are other parts of this industry which are highly stressed-- for example, testing, packaging, et cetera-- which impact some other devices, where devices are available but then these other aspects of the semiconductor supply chain are stressed. So it is going to definitely impact your PCs, laptops, et cetera, though with the COVID pandemic there was a sudden increase in demand. And we see that sort of flattening out to some extent.
JULIE HYMAN: Gaurav, what effect is all of this going to have on prices when all is said and done? How high do you think price-- how much do you think prices are going to increase as a result of this?
GAURAV GUPTA: So we have already seen a number of times that costs being increased by foundries, which has resulted in chip prices going up from the chip vendors. The average price increases are anywhere between 10% to 45% for some of the impacted devices. And it's not just the pricing, but the lead times for some of the devices are getting extended to six months to even 12 months in certain cases.
MYLES UDLAND: All right. Gaurav Gupta, Vice President at Gartner Research. Gaurav, thanks so much for joining the program to talk through some of the challenges facing the chip sector today and going through, at least it seems, the rest of 2021.