A variety of factors have converged to result in a semiconductor chip shortage. These include supply chain and production disruptions due to the coronavirus. Shipping delays are also another factor. Additionally, there is strong demand due to fiscal stimulus and the coronavirus leading to increased demand for tech products.
It's starting to manifest as many companies are seeing slower production due to delays in semiconductors. Most notably, automakers like Ford
Intel Plans
As a result of these issues, Intel
It is also consistent with President Joe Biden's agenda to increase U.S. production of key inputs. Currently, Taiwan supplies the bulk of chips. Intel plans to construct two new fabs in Arizona and increase investment by 30%. At one time, Intel was considered the leading semiconductor company, but in recent years, it's fallen behind TSM and Samsung. The company hopes these efforts will help it retake the lead as the most technologically-advanced manufacturer.
Sector Outlook
Semiconductors are in an interesting spot. It's a cyclical industry, yet it actually saw a boost in sales due to the unique nature of the recent recession. However, sales should continue to be strong especially with economic growth expected to accelerate in the coming months. Additionally, there are several sources of secular demand that will remain strong regardless of economic conditions such as mobile operators upgrading their networks to 5G, increase in cloud computing, and automation.
The shortage means companies will have increased pricing power and large backlogs. Companies will have no choice but to pay up as these chips are an essential cost of business. However, this circumstance will be very bullish for companies who help build the equipment to make chips such as Advanced Energy Industries
