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The Smart Cube: electronic component shortage expected to persist throughout first half of 2022

According to analysis by Goldman Sachs, over 160 industries have been affected as a result of the global electronic component shortage. The industries which have been hardest hit by the crisis include the automotive and consumer electronics sectors. A number of factors have caused this shortage of electronic components across industries, including increased orders, lean inventories,  COVID-19, and geopolitical conflicts and tensions.

But we are still very much in the middle of the crisis – the shortage is expected to persist throughout the first six months of 2022. However, come the second half of the year, the expectation is that the market will normalise. In fact, some industry experts predict that come 2023, the semiconductor industry will actually experience overproduction due to the ongoing capacity expansions.

Semiconductor chips companies have been expanding their manufacturing capacities in order to deal with the ongoing shortages. For example, in May 2021 Intel announced an investment of $3.5 billion to expand the capacity of its manufacturing operations in New Mexico, USA. Following this, the US-based tech giant has also made massive investments in other facilities in Ireland, Israel, and the US.

However, the Russia-Ukraine conflict could put pay to a potential recovery for the semiconductor industry. Although Russia and Ukraine are not notable consumers of electronic components or semiconductor chips, they are suppliers of critical raw materials, such as Neon gas, Aluminium and Palladium. The prices of these raw materials, which are primarily exported by Russia and Ukraine, have increased significantly since February 2022, while trade sanctions implemented by the EU and US on Russia are expected to further disrupt the supply of these key commodities.

What’s more, the discovery of new strains of COVID-19 could further impact these forecasts, as was the case with the Delta and Omicron variants of the virus. However, it is hoped that higher vaccination rates in chip-producing nations such as Malaysia, Vietnam, Taiwan and South Korea will lead to new variants of COVID-19 having a limited effect on the semiconductor supply chain.