Chip shortage may lead to production cuts, shipment delays : Reports

Snapdragon 898
Snapdragon 898

The semiconductor chip scarcity that has harmed the majority of businesses, most notably India’s auto sector, is unlikely to be resolved anytime soon. According to a recent research by Nomura, the spread of the delta variant in conjunction with poor vaccination rates in many ASEAN economies and China’s zero tolerance Covid policy has pushed governments to impose restrictions and force factory/port closures.

As a result of the raw material shortfall, port congestion, and container shortages, lead times – the period between ordering a chip and receiving it – have increased, particularly in countries that are part of manufacturing supply chains, such as Vietnam, South Korea, and China in August.

This occurs at a time when most sectors’ (semiconductor) chip stocks are already depleted. According to Nomura, input shortages and low stockpiles would likely result in production cuts and delayed shipments in the September 2021 quarter.

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Indeed, August saw a decline in both the output and export orders components of the manufacturing PMIs. Asia is home to the world’s manufacturing powerhouses, and if supply limitations do not ease in the next month or two, higher downstream product prices could be in store for Western consumer markets, according to Sonal Varma, Nomura’s head economist for India and Asia ex-Japan.

The component of the manufacturing PMI that measures suppliers’ delivery times fell in eight of nine Asian economies in August, to an average of 41.3 from 42.0 in July — both below the 50-point barrier.

For example, Vietnam’s IHS Markit PMI fell to 40.2 in August from 45.1 in July, marking the country’s third straight month of contraction and the lowest value since April 2020. On the other hand, Thailand’s PMI fell to 48.3 from 48.7 — its sixth decline in eight months — and the Philippines’ PMI fell to 46.4 from 50.4, its lowest level since May 2020.

Malaysia and Indonesia had some relief in July, when their PMI readings increased to 43.4 from 40.1 and 43.7 from 40.1, respectively, albeit both remain below the 50-point threshold that distinguishes contraction from expansion, according to IHS Markit statistics.

“In August, manufacturing PMIs in Indonesia, Vietnam, Thailand, the Philippines, and Malaysia all stayed far below zero, reflecting the disruption caused by lockdowns that forced industries to halt or delay production,” Varma added.

According to a recent report, the global market is worth $439 billion. Taiwan, according to a recent research by The Ken, is the epicentre of the semiconductor industry, accounting for 63% of foundries, followed by South Korea (18%) and China (6%), with the remaining 13% of foundries located in other nations.

In the United States, the lead time for automotive chips has climbed from 8 to 12 weeks to 36 to 40 weeks, according to an August 30 report from Emkay Global.

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This, the research states, is mostly due to an increase in Covid-19 instances and supply chain constraints in Asian countries. Maruti Suzuki, for example, currently anticipates a 60% decline in overall vehicle output in September across its Haryana and Gujarat plants due to the chip shortage.

“Chip shortages are projected to persist in Q2/Q3-FY22, with supply improvements occurring in stages. Lead times are expected to fall to 18-20 weeks by Q4-FY22 and to normal 8-12 weeks by FY23’s end, according to Emkay Global’s Raghunandhan N L, Mumuksh Mandlesha, and Bhargava Perni.

source: Business Standard


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