Why the price of the iPhone and the PlayStation could rise further

During lockdowns due to the Covid-19 pandemic, consumers rushed to computers, tablets or game consoles, which work with chips.

Meanwhile, tech giant Huawei, seeing the worsening trade war between China and the United States, stocked semiconductors last year, increasing pressure on supply.

These tensions in the market became glaring when automakers sought to source more semiconductors, and realized that manufacturers were prioritizing consumer electronics.

The hardest blow to the automobile

The automotive industry is the most visible victim of the chip shortage to date, with giants like Ford and Volkswagen forced to cut production, but other sectors are also affected.

“The combination of the coronavirus storm, inventory spikes due to the trade war, and the paradigm shift of telecommuting is causing a shortage of semiconductors.”, Neil Mawston, executive director of consulting firm Strategy Analytics, told AFP. “Everything that has a chip is affected, cars, smartphones, game consoles, tablets and laptops.”

“Electronic goods and vehicles will be produced in fewer numbers and will be more expensive in 2021”, he predicts.

Shipments of some iPhone 12 models have been limited due to a lack of components, according to Bloomberg. While a deficit of certain chips has been cited to explain the difficulties in obtaining the new Sony PlayStation 5 and the latest Microsoft XboX console.

The automobile first, the others after

Several semiconductor manufacturers, such as the American giant Qualcomm and its competitor AMD, are warning of a growing crisis.

The semiconductor supply chain is complex. The American giants, which supply manufacturers of consumer electronics, design the components but for the most part do not manufacture them. Asian subcontractors, such as Taiwan Semiconductor Manufacturing Company (TSMC) or South Korean Samsung, manage most of the production lines.

Manufacturers also have difficulty meeting demand from different sectors as a change in production mode can take them months.

Taiwan, home to some of the most modern semiconductor foundries, has found itself under pressure from automakers and governments.

The island pledged last month to ramp up production of chipsets for automakers, while TSMC assured the auto was “his highest priority”, while noting that its factories were already operating at full capacity.

The launch of 5G has made matters even worse, with a need for a large number of chips for a new generation of mobiles, wireless infrastructure and other equipment, said GlobalFoundries, a semiconductor manufacturer whose the headquarters are in the United States and the factories in Singapore.

A crisis fueled by the conflict between China and the United States

Washington, which accuses Huawei, without having published any evidence, of having stolen American trade secrets, is blocking the supply of the Chinese giant of semiconductors made from American technology.

“When Huawei stockpiled smartphone chips, competitors also sought, to a lesser extent, to strengthen their reserves to guarantee their future supply” compounding the global shortage, noted Neil Mawston of Strategy Analytics.

The lack of chips could delay production of nearly a million vehicles in the first quarter of this year, according to research firm IHS Markit. But analysts believe that it is still too early to measure the consequences on other sectors.

The deficit should be reduced during the year thanks to the vaccination campaigns which will allow the factories to return to a normal regime and new factories should also start.

But other shortages could occur in the future, analysts point out, calling for more local production in countries in demand.

“Semiconductors are at the heart of the global economy”, GlobalFoundries said in a statement, calling on governments to invest and “play their part to help bridge the clear mismatch between supply and demand.”

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