Laptops, phones, tablets, gaming consoles: the devices that keep us connected to friends, family and colleagues have been in high demand over the past year, and it’s been a big win for the semiconductor industry that produces the tiny chips that power all those devices. 

The latest figures published by tech analyst IDC show that worldwide semiconductor sales grew to a mammoth $464 billion in 2020, an increase of almost 11% compared to 2019.  

There is no sign of the trend reversing: IDC forecasts that the market will grow by another 12.5% next year to reach $522 billion in 2021. This will be driven largely by consumers, who will continue to purchase digital products, consume data and adopt cloud services at unprecedented rates.  

Products like PCs have played a central role in triggering the surge in chip sales. Shipments of semiconductors powering computing systems boomed by more than 17% compared to 2019, mostly driven by the requirements of remote work and online learning.  

The PC market hasn’t seen annual growth of this magnitude since 2010, according to IDC; and semiconductor revenue from computing systems is expected to keep growing, albeit at a slower pace, in 2021. 

Similarly, as consumers increasingly turn to digital services in their homes and leisure time, IDC anticipates steady increases in sales of chips powering devices like game consoles, tablets, wireless headphones or smart watches. 

Where semiconductors will be in most demand, however, is in the mobile phone industry. Although smartphone shipments fell by more than 10% last year, mobile phone semiconductor revenues still grew because many vendors shifted to 5G devices. But this is only a start: in 2021, as consumers start actually buying new 5G-enabled handsets, IDC forecasts that revenue from chips powering mobile phones will grow by 23.3% to reach $147 billion. 

“2021 will be an especially important year for semiconductor vendors as 5G phones capture 34% of all mobile phone shipments while semiconductors for 5G phones will capture nearly two thirds of the revenue in the segment,” said Phil Solis, research director for connectivity and smartphone semiconductors at IDC. 

A strong year clouded by worrying shortages 

Despite seemingly healthy results, all is not rosy in the semiconductor space. 

The industry was not ready for the surge in demand triggered, in part, by the COVID-19 pandemic, and for several months, supply chains have been constrained by limited chip availability. In other words, the strong sales reported last year are also reflective of an industry operating close to capacity.  

“Much like a traffic jam and the ripple effect, a disruption on the semiconductor supply chain operating close to capacity will impact across the supply chain,” IDC said.

PC vendors have been faced with shortages on components since the second quarter of 2020, and as demand keeps increasing, delays are expected throughout the rest of this year.  

Similar issues were encountered by smartphone manufacturers. Shortly after it was released, Apple’s iPhone 12 Pro came with a three-week waiting time; meanwhile, Samsung and Xiaomi have both warned of potential delays to their next releases. 

Shortages in industries where demand is high is increasingly affecting the availability of chips in other markets, as the amount of manufacturing capacity for semiconductors falls further behind. 

“Chip shortages will likely impact electronic device availability and costs,” Brandon Kulik, principal at Deloitte Consulting, tells ZDNet. “And when we talk about electronic devices, we go well beyond PCs and phones and gaming consoles and should include consumer products like home appliances, home networking, and wearables.” 

“Across these types of products, consumers are having to face the reality of waiting for products that have been affected by the shortage and, in some cases, paying higher prices for items in very short supply.” 

IDC’s report also points to the effect that chip shortages are already having in the automotive industry, where some carmakers are temporarily suspending production of new vehicles because of the difficulty of securing the necessary semiconductors. 

Reports show that some manufacturers are now having difficulty producing products that are powered by simple processors, such as microwaves, refrigerators and washing machines, as a result of the shortage. 

In the next year, said IDC, the industry will continue to struggle to re-balance the distribution of chips – although with major players investing in new capacity, some improvements can be expected in a few years. 

In sectors like automotive, companies are already having to implement mitigation strategies, says Kulik. They range from re-directing chip supply to higher-profit vehicles to completing certain cars without some modules in place, to keep assembly lines running. 

Ultimately, says Kulik, the risk of chip shortages could affect most businesses. “The impact on enterprises is perhaps more interesting than it is for consumers, given businesses need greater data capacity than ever to serve customers, run operations, and to create and deliver products. That data is managed via their own data centers or managed by cloud service providers which need higher end semiconductors,” he argues. 

“If we see shortages in the CPU and GPU markets, improving the way that data is managed could become more difficult and the costs to manage that data will grow.”   

Dramatic shortages in that segment are yet to be seen, but Kulik warned that this could soon change.  

The cyclical nature of the industry means that supply will eventually catch back up with demand, said Kulik, but the explosion of semiconductor sales has once more highlighted a trend that experts have seen coming for years: users and businesses are consuming data at a rate that is by order of magnitude more than the semiconductor sector’s projected capacity can sustain. 

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Source: https://www.zdnet.com/article/the-impact-of-the-global-chip-shortage-continues-to-ripple-across-the-tech-supply-chain/#ftag=RSSbaffb68