Experts: Chip shortage may continue as COVID lingers

A prolonged global chip shortage that started in late 2020 is likely to last throughout this year as digital transformation continues to gain traction amid the COVID-19 pandemic, industry experts said.

Leading economies around the world are scrambling to unveil favorable policies to increase local production of computer chips due to the semiconductor crunch, they added.

Ariane Bucaille, leader of the Deloitte global technology, media and telecommunications industry, said in a report that the COVID-19 crisis continues to accelerate the adoption of technology and increase levels of connectivity via the digital world. Crimped supplies are still struggling to match growing demand from makers of digital products and service providers.

The shortage this year will not be as severe as in 2020 and 2021, which devastated supply chains. The shortage will also not affect all chip varieties, Bucaille added.

"There is enormous demand for chips as more and more products become digitally connected, powering everything from our multiple devices to smart vehicles. And connectivity is only going to expand with such technologies as 5G, reinforcing the rapid digital transformation all industries and businesses are currently witnessing," Bucaille said.

The Deloitte report said customers in mid-2021 were waiting between 20 and 52 weeks for multiple kinds of semiconductors, causing manufacturing delays or shutdowns which led to revenue losses in the tens or even hundreds of billions of dollars.

By the end of this year, those lead times will be closer to 10-20 weeks and the industry will be in balance by early 2023, the Deloitte report predicted.

The current shortage of chips helped many countries realize the centrality of semiconductors to economic growth, and the United States and the European Union are rolling out multibillion-dollar plans to support their semiconductor industries.

The European Commission announced a new European Chips Act earlier this month that involves more than 43 billion euros ($49 billion) in public and private funding, with a goal of doubling the EU's share of global chip production from 9 percent to 20 percent by 2030.

The US House of Representatives also approved $52 billion in federal funding for the US semiconductor industry, with $39 billion earmarked for the development of new chip fabrication plants.

Bai Ming, deputy director of international market research at the Chinese Academy of International Trade and Economic Cooperation, said the plans from the US and EU highlight the importance of chips to economic recovery during the COVID-19 pandemic and to future economic growth.

"Competition in the global chip sector has reached a new high," Bai said, adding China rolled out a string of policies, including tax reductions and funding support, to accelerate the development of its semiconductor sector.

"I believe such policies will evolve and be further strengthened," Bai said, adding more efforts will be made to encourage Chinese companies to achieve breakthroughs in core chip technologies.

In 2021, sales revenue of China's integrated circuit industry exceeded 1 trillion yuan ($157.3 billion) for the first time, with year-on-year growth of 18 percent, based on estimates by the China Semiconductor Industry Association. In comparison, global semiconductor revenue grew at a compound annual growth rate of 25.6 percent to $552.9 billion last year.

"As the world's largest chip market, China's semiconductor industry has made progress in recent years," said Roger Sheng, vice-president of research at US market research company Gartner.

"But there is still a big technological gap between Chinese chipmakers and their foreign peers, especially in high-end chipmaking equipment and fundamental chip materials."

The Ministry of Industry and Information Technology, China's top industry regulator, said one of its top priorities during the 14th Five-Year Plan (2021-25) period is to advance the modernization of industrial chains and encourage companies to overcome crucial technological bottlenecks such as in the field of high-end semiconductor equipment.