Chip shortage causes chaos on the global market

SARAJEVO, (Patria) - A six-decade-old invention, the microchip, has gone from being a little-understood workhorse in powerful computers to the most important and expensive component under the hood of modern devices.

That explosion in demand - unexpectedly hit during the Covid-19 pandemic for certain industries like smartphones and computers - has caused a short-term supply shock that has triggered an unprecedented global shortage.

In February, lead times - the duration between placing an order for a chip and the moment it is actually fulfilled - stretched to 15 weeks for the first time since data collection began in 2017, according to industry distributors Susquehanna Financial Group. Lead times for Broadcom Inc. - a barometer for the industry due to its participation in the supply chain - extended to 22.2 weeks, up from 12.2 weeks in February 2020.

Chip lead times exceeded the 2018 peak in February, Bloomberg writes.

The crisis has engulfed General Motors and Volkswagens worldwide and sent politicians from Washington to Beijing into crisis management. Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. have also been catapulted to the top of investors' and governments' agendas. The two largest Asian chip manufacturers are responsible for producing the vast majority of the world's most advanced silicon, but they do not have the capacity to meet all demand. This is a bottleneck that could last several quarters - or until next year.

Alarms are ringing. A growing number of industry players from Continental AG to Innolux Corp. and Renesas Electronics Corp. have warned in recent weeks of longer-than-expected deficits due to rapid production - potentially well past summers. Samsung has globally flagged a "serious imbalance," the largest company to date to warn of fallout from the crisis. Broadcom CEO Hock Tan said in March that his company was sold out for the year, and customers were "ready to book delivery of those products through the end of 2021." And on Friday, Nio Inc. - a Chinese EV company sometimes compared to Tesla - became the first high-profile automaker from the country to suspend production due to the shortage.

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