Chip Shortage Expected to Last for a While

Chip Shortage Expected to Last for a While

It’s coming on two years now that we have had to live under pandemic conditions. At first the whole world basically shut down apart from those doing front line work in our hospitals and our food supply chains. Now, most of the developed world is coming out of lockdowns and trying to get back to normality. This is being hindered, especially in the electronics industry, as a large part of the developing world has not had the same access to vaccinations that we have. Much of the electronics industry’s supply chain is based in southern and eastern Asia, and many of the countries in that region are still struggling with rising numbers of COVID 19 cases due to the Delta variant. These countries include Malaysia, Thailand, Vietnam and the Philippines, who all have large electronic production facilities and have recently introduced new lockdowns to protect their populations. It looks like it will be a long time before things recover there, and get back to normal here.


IHS Markit has released its latest Manufacturing Purchasing Managers' Index (PMI) surveys for Southeast Asia which look at the impact of the disruption caused by the Delta variant, including the decreased production and lower than expected consumption spending. The IHS Markit Malaysia Manufacturing PMI showed manufacturing contracting through June, July and August. It measured 43.4 in August compared with 51.3 in May - showing a real weakness in business conditions in the Malaysian manufacturing sector. Malaysia hosts many back-end operations for the semiconductor industry, including the packaging and testing of chips.


Vietnam's economy has also been hit badly by the Delta variant. Despite showing resilience in 2020 as it initially dealt the pandemic really well, the Delta wave has caused a sharp decline in business conditions for manufacturers throughout July and August. The IHS Markit Vietnam Manufacturing Purchasing Managers' Index fell to 40.2 in August from 45.1 in July. Many factories have closed there because of the pandemic during July and August. Vietnam is a major electronics manufacturing hub for Samsung. The Korean company has said there were production disruptions in certain places in Q2 2021 due to lockdowns. It has attempted to mitigate those disruptions by shifting production to other parts of the globe. Toyota has also been affected by global semiconductor shortages and disruption to supply chains in its south east Asian manufacturing hubs, with an estimated 40% drop in global auto production in September. Several of the company’s auto assembly lines in Japan had stoppages during July and August due to disruption in the supply of auto parts from Vietnam.


Away from the pandemic, the IHS Markit survey also highlighted a risk to the global electronics supply chain due to potential geopolitical flashpoints involving both South Korea and Taiwan. It notes the escalation of tensions in those particular regions during the past year. Despite all of these risks, the new research found that demand remains strong in the short and medium terms, and for both industrial and consumer goods.


With the US and the EU intending to reduce their reliance on electronic imports from Asia over the next ten years. The electronics industry may be unrecognisable in a decade compared to today.