Global microchip shortage to last until 2023

·3 min read
A microchip
A microchip

The world's microchip drought, which has led to car factories freezing production, is set to finally end in 2023 according to analyst predictions.

Higher prices and political concerns around the shortage are prompting chipmakers to invest in new plants, with a huge wave of supply due to hit the market the year after next.

Analysts IDC said they expected the industry to reach overcapacity in 2023 after growing by 17.3pc this year and as further expansion of chip foundries come online.

Manufacturers of cars and electronics have been left scrambling for key semiconductor parts as demand outstripped supply during the pandemic.

The shortage has forced carmakers to shut down production lines and will leave a shortfall this year of millions of new vehicles.

As the pandemic hit in March 2020, carmakers slashed their orders for semiconductor chips amid fears that demand for new vehicles would collapse.

However, as the economy began to recover, they found they were back of the queue for new chips as demand for consumer electronics remained high. Millions of shoppers around the world upgraded their electronic devices after being forced to spend more time at home under Covid lockdowns.

IDC said foundries were currently running at close to 100pc capacity for the rest of the year, with supply of "front end" parts, the silicon wafers that form the key building block of chips, "starting to meet demand" over the last three months.

The analysts said "back end" supply, where these wafers are engineered into smart microchips, remained constrained.

However, by 2023, the backlog should have cleared and the chip market will have a glut of supply. Analysts said they expected the semiconductor market to expand to $600bn by 2025, growing 5.3pc, faster than previous growth.

The drought has spurred a fresh wave of investment in semiconductor capacity and research, with the expansion of chip fabrication plants in Taiwan and new facilities planned in the US and Europe. Some of this capacity is not expected to come online for several years.

Chip companies such as America's Intel, Taiwan's TSMC and South Korea's Samsung plan to spend around $75bn this year on semiconductors, an increase from $50bn two years ago.

Intel has announced sweeping plans to invest $95bn to boost semiconductor research and capacity in Europe over the next decade.

The European Commission has sought to take command of a centralised European microchip industry with a European Chips Act. The bloc wants to command a fifth of the global chip supply by 2030, but lags far behind more mature markets such as Taiwan. The European Commission must also secure the tens of billions of euros in funding needed to make its mark.

In the US, President Joe Biden earlier this year unveiled his Chips for America Act, a $50bn (£36bn) incentive scheme to accelerate American chip manufacturing and research, although this still needs to be passed through Congress.

IDC said revenues for 5G semiconductors for mobile communications would increase by 128pc, while automotive chip revenues will increase 22.8pc by the end of the year as shortages are slowly mitigated.

Concerns over chip sovereignty have prompted the UK to review the takeover of the country's largest silicon wafer producer, Newport Wafer Fab, by a Chinese-owned company. The competition watchdog is also investigating the takeover of chip technology designer Arm by US firm Nvidia.

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