KUALA LUMPUR (July 28): The global semiconductor chip shortage that started last year continues to plague certain industries and will likely do so for the rest of the year, due to ever-increasing demand and limited new supply, Moody’s Analytics said.

"But not all chips are created equal, and the shortage will be felt more acutely in certain industries and sectors," it said in a report released today.

The research firm said a reason why the shortage has been so severe is the complexity arising from the fact that more and more chips are now being included in ever smaller spaces, and a different process is created with each new generation of technology.

It cited cars, which use chips from older technology for which less new supply is coming on line. "Each car requires thousands of chips, compared with phones or other electronic gadgets that require only a handful of newer-generation chips."

Another reason for the shortage is that the Covid-19 pandemic has accelerated the digitisation of both the workplace and the home, and demand for all kinds of electronic gadgets has skyrocketed, Moody’s Analytics pointed out.

"Given market sentiment and the power of the affected companies, various governments around the world have pledged to increase capital spending and investment in semiconductor manufacturing capacity. South Korea recently announced a programme worth US$450 billion over 10 years, while the US is considering legislation worth US$52 billion, and the European Union is contemplating spending US$160 billion.

"Private companies are already plowing money into capital investment — spending year over year through April grew 56%, according to SEMI," it added.

Still, Moody’s Analytics said to truly get around the current shortage, companies need to have business continuity programmes that mitigate the risks associated with these supply-chain challenges.

"Some carmakers, like Toyota, have long had measures in place to ensure [their] operations are not affected by these supply-chain constraints since the Fukushima earthquake in 2011, and we expect these companies to be relatively unscathed by the current shortage as they continue to build inventory to buffer any short-term supply issues.

"Other car companies have also started to adopt similar measures as they realise the pitfalls of not having a buffer inventory. This means that increased demand now will also include excess demand to build inventory that will come down as more supply also comes on line," it said.

"This implies that even if the situation is improving, the short-term squeeze will likely persist, and supply will likely be tight going into 2022."

Moody’s Analytics said another reason the chip shortage is likely to continue even if immediate needs are met is the increasing digitisation of both the home and the workplace. "The capital investments made to move to the cloud and digitise operations are likely to only increase over time, fueling further demand for semiconductors, particularly those at the top end of the spectrum."

The research firm expects recent efforts by certain governments in North America, Europe and Asia to increase production and create localised supply chains to expand further, particularly as the pandemic continues to create bottlenecks for the global supply chain to operate efficiently.