Global chip supply chain vulnerable to massive disruption – Research finds

(Reuters) – A new study from a U.S. industry group found that the global semiconductor supply chain has become increasingly vulnerable to natural disasters and geopolitical disruptions because suppliers have become more concentrated in distinct regions.

The report comes amid a global chip shortage that started with overbooked factories in Taiwan late last year, but has since been exacerbated by a fire at a plant in Japan, a freeze that knocked out electricity in the U.S. state of Texas and a worsening drought in Taiwan this year. The shortage has idled some production lines at automobile factories in the United States, Europe and Asia.

Modern chipmaking involves more than a thousand steps and requires complex intellectual property, tools and chemicals from around the world. But the Semiconductor Industry Association, representing most U.S. chipmakers, on Thursday said it found more than 50 places in the supply chain where a single region has more than 65% market share.

Intellectual property and software to design cutting-edge chips, for example, is dominated by the United States, while special gases key to fabricating chips come from Europe. And the manufacturing of the most advanced chips is completely located in Asia – 92% of it in Taiwan.

If Taiwan were unable to make chips for a year, it would cost the global electronics industry almost half a trillion dollars in revenue, the report found: “The global electronics supply chain would come to a halt.”

Still, the study warned, a go-it-alone approach in which governments try to replicate the supply chain domestically is infeasible because it would cost $1.2 trillion globally – with up to $450 billion of that cost in United States alone – causing the price of chips to skyrocket.

In some cases, though, it called for incentives to create “minimum viable capacity” in regions that lack any part of the supply chain.

In the case of the United States and Europe, that would mean new advanced chip factories to balance concentration in Taiwan and South Korea.

“We don’t have enough semiconductor manufacturing in the United States … And it’s got to be fixed with the assistance of the U.S. government,” John Neuffer, chief executive officer of the association, told Reuters.

Apple supplier Foxconn’s fourth-quarter profit slips, lags view

TAIPEI – Foxconn, the world’s largest contract electronics maker, posted on Tuesday a lower fourth-quarter profit that lagged expectations despite strong iPhone 12 sales and pandemic-led demand for telecommuting devices.

The Taiwanese firm, which counts technology giants such as Apple Inc among its major clients, booked October-December net profit of T$45.97 billion ($1.61 billion).

That represented a 4% fall from a year earlier, according to a company statement, and compared with the T$50.89 billion average of 11 analyst estimates compiled by Refinitiv.

Formally called Hon Hai Precision Industry Co Ltd, Foxconn’s fourth-quarter revenue rose 15% on the year.

The company had previously forecast fourth-quarter revenue to be in a range of a decline of 3% and gain of 3% from a year earlier.

($1 = 28.5280 Taiwan dollars)

Fridges, microwaves fall prey to global chip shortage

A global shortage of chips that has rattled production lines at car companies and squeezed stockpiles at gadget makers, is now leaving home appliance makers unable to meet demand, according to the president of Whirlpool Corp in China.

The U.S. based company, one of the world’s largest white goods firm, is falling behind on exports to Europe and the United States from China, by as much as 25% on some months, Jason Ai told Reuters in Shanghai.

“It’s a perfect storm,” he said on the sidelines of the Appliance and World Electronics Expo.

“On the one hand we have to satisfy domestic demand for appliances, on the other hand we’re facing an explosion of export orders. As far as chips go, for those of us in China, it was inevitable.”

The company has struggled to secure enough microcontrollers, simple processors that power over half of its products including microwaves, refrigerators, and washing machines.

While the chip shortage has affected a range of high-end suppliers like Qualcomm Inc, it originated and remains most severe for mature technologies, for example power-management chips used in cars.

The chip shortage, which began in earnest in late December, was caused in part as automakers miscalculated demand and pandemic-fuelled sales of smartphones and laptops surged. It forced carmakers including General Motors to cut production, and increased costs for smartphone makers such as Xiaomi Corp.

And with every company that uses chips in its products panic buying to shore up its stockpile, the shortage has blindsided not just Whirlpool but other appliance makers too.

Hangzhou Robam Appliances Co Ltd, a Chinese white goods maker with over 26,000 employees, had to delay the release of a new high-end stove vent by four months because it couldn’t source enough microcontrollers.

“Most of our products are already optimised for smart home use, so of course we need a lot of chips,” said Dan Ye, marketing director at Robam.

He added that the company had found it easier to source chips from China than overseas, prompting it to re-evaluate future supplies.

“The chips we use in our products aren’t the most cutting edge. Domestic chips can satisfy our needs completely.”

Already cutthroat, profit margins at white goods firms are getting further squeezed due to the shortage.

Robin Rao, planning department director of China’s Sichuan Changhong Electric Co Ltd, said lengthy replacement cycles for appliances, coupled with intense competition and a slowing real estate market, have long kept profit margins thin.

“But because of these core components and chips, our supply chain capital costs have increased.”

To deal with the shortage of microprocessors and flash memory chips, Dreame Technology – a vacuum cleaner brand funded by Xiaomi – cut its marketing budget and hired extra staff just to manage relationships with suppliers.

Dreame has also spent “several million yuan” to test out chips that could serve as alternatives to the ones it typically uses, said Frank Wang, the company’s marketing director.

“We’re working to have deeper control of our suppliers, and have even invested in a few suppliers,” he said.

By: Kwamed2k