The Smartphone Industry Is Starting To Get Impacted By The Global Chip Shortage

The global shortage of computer chips is likely to impact smartphone manufacturing after the shortage has hit a range of industries – from automobiles to video game consoles.

Since towards the end of last year, there has been a shortage of computer chips because of a combination of factors including closures of facilities because of Covid-19 pandemic related lockdowns and a sudden surge in the consumer electronics industry.

The shortage has particularly impacted the auto segment and global firms like people shouldn’t live through “small, glowing rectangles” being forced to cut down and even temporarily halting production of vehicles.

The shift has also hit manufacturing of video game consoles and gamers are finding it increasingly difficult to acquire new Microsoft Xbox Series X and Sony PlayStation 5 systems.

The shortage has so far not significantly impacted smartphone production because of stockpiling of critical components by the likes of Apple and Samsung.

“The automotive industry doesn’t run at the same cadence as the smartphone business,” Ben Wood, chief analyst at CCS Insight, said. “They saw the problems more slowly than the smartphone guys.”

While car makers need bigger, older chips, the latest processors are used by smartphone makers, said Wood. Further, smartphones manufacturers are the preferred customers for chip suppliers because the handsets are sold in far higher volumes compared to vehicles.

Meanwhile, “smartphone companies didn’t drop their demand for chips as the automotive sector did when they expected a drop in demand for cars” at the start of the pandemic, Syed Alam, Accenture’s global semiconductor lead, said.

“In fact, smartphone companies benefited from the extra capacity left behind by automotive businesses, which led the automotive sector to experience a chip shortage when demand for cars rose faster than they anticipated,” he added.

However the impact of the global chip shortage is now being felt by mobile manufacturers too.

“Now that the automotive sector and others are catching up and starting to reclaim the capacity they had given up, there is a fierce competition for semiconductor supply,” Alam added. “This has created supply pressure for smartphone chips.”

During the height of the Covid-19 pandemic, there was a slowdown in demand for new smartphones in 2020 as sales dropped globally by 12.5 per cent, according to Gartner. But the so far this year, the demand has picked up quite fast with a number of countries lifting their Covid-19 lockdown restrictions.

According to Gartner, there has been a 26 per cent growth in global smartphone sales in the first quarter of the current year.

But on Tuesday, Apple CEO Tim Cook warned that sales of the iPhone as well as other products like the iPad will be affected by silicon supply constraints. Cook said that the chip shortage is not in the area of high-powered processors that Apple manufactures for its devices but for simpler and older tech chips that power functions like powering mobile displays and decoding audio.

“Although Apple is one of the ‘big dogs’ that gets top priority from chipmakers, it is vulnerable to silicon shortages like everyone else,” Glenn O’Donnell, VP and research director at analyst firm Forrester, said.

“While everyone focuses in on CPUs (the high end of chips), every device (including an iPhone) contains a whole lot more and without these supporting chips, the phone is nearly useless.”

Wood added that the shortage is also likely affecting the smaller manufacturers such as China’s Lenovo and TCL, and Finland’s HMD Global.

Despite benefitting from its size and bargaining power, Samsung is also likely to be affected by the chip shortage, say analysts.

“Samsung seems the one under greater impact” in the first half of 2021, Dale Gai, semiconductor analyst at Counterpoint Research, said.

(Adapted from CNBC.com)

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