The chip shortage is a problem that resolves itself automatically
ODO FIRM’S the crisis is an opportunity for another. A semiconductor shortage has helped boost the valuations of companies like Nvidia, whose chips power everything from video games to machine learning and data centers. But the seller’s boom is synonymous with misery for buyers. Auto manufacturers, whose products have become computers on wheels, are among the victims. Profits at Ford, the second-largest U.S. automaker, fell by half in the last quarter amid a global chip shortage. Analysts say the industry could build about 5 million fewer cars this year, all for lack of their smaller components.
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Automakers aren’t the only companies feeling the pinch. Apple and Microsoft have also warned that they will be affected. Politicians are also attracted. Chips will be the order of the day later this month when U.S. Vice President Kamala Harris visits Vietnam, which has a thriving electronics industry. Angela Merkel, the outgoing German Chancellor, lamented Europe’s low share in global chip production.
The shortage is the result of a sudden increase in demand. Chip manufacturing is a cyclical business that, between ups and downs, has experienced strong growth for decades as computers infiltrate every corner of society. This trend has been amplified by the pandemic. Confined consumers shopped online, logged into remote meetings, and spent hours with video streaming and video games. The result has been an increase in demand for the semiconductors that power data centers and the gadgets that make such things possible, clogging factories with orders.
The crisis had three consequences, two encouraging and one less. The first is an investment boom. Large producers such as Intel, Samsung and TSMC plan to spend hundreds of billions of dollars in additional capacity over the next several years. As in many markets, high prices are the best remedy for high prices.
The second is that chip industry customers are also adapting. When demand collapsed at the start of the pandemic, automakers cut back on orders from chipmakers. The size and weight of the auto industry means it is used to ordering from suppliers. But when demand recovered, it found itself at the back of the pack, due to long lead times and competition for the capacity of the even bigger and more influential tech industry.
The unpleasant experience of being the supplicant rather than the boss has prompted automakers to take tighter control over supplies of vital components. After Tesla, Volkswagen has announced its intention to develop driver assistance chips in-house. Other companies are forging closer relationships with chipmakers. Toyota, a Japanese company, has weathered the shortage relatively well, in part because it was slower to cut orders when the pandemic hit. In June, Robert Bosch, a major auto parts supplier, cut the ribbon at his own billion euro ($ 1.2 billion) chip factory in Dresden. Redesigned supply chains will be more resilient.
The third side effect was a wave of techno-nationalism. America plans to distribute billions of dollars to attract East Asian chipmakers. Europe wants to double its share of global production to 20% by 2030. Even Britain has said the fate of a small Wales chip factory is a matter of national security.
There is some force in the argument that chips have come to occupy what were once called the “dominant heights” of an economy, much like oil refineries or automobile factories in the 20th century. . The concentration of production in Taiwan, in particular, is an uncomfortable geopolitical risk. But as governments of the last century have discovered, subsidies lead to overcapacity and overcapacity and, ultimately, even more calls for public money to support uncompetitive businesses. The chip shortage is mainly a self-solved problem. Governments should resist the temptation to think of themselves as saviors. ■
This article appeared in the Leaders section of the print edition under the title “A Self-Solved Problem”