By Eun-Young Jeong in Seoul and Dan Strumpf in Hong Kong
The global chip shortage hobbled auto makers world-wide. Now,
other industries are feeling the squeeze.
It has hit makers of home appliances, heavy-equipment, servers
and sex toys. It is confounding multinationals to startups. Even
companies that don't use chips as their core business, such as
freight operators and retailers, find themselves affected. The
scarcity means higher price tags for consumers, longer waits for
goods, empty store shelves and swaths of the business world racing
to secure whatever supply they can.
The chip famine first hit auto makers late last year after they
underestimated demand during the pandemic. But as car makers ramped
up orders, other industries saw the components queue lengthen and
increased their own purchasing. Demand for consumer electronics
stayed hot. Now chip makers can't keep pace, driving up prices for
parts, thinning out supply and spurring panic buying.
The tight supply for many chips is likely to persist through
this year, companies say. The shortfalls are creating missed
business opportunities, just as the global economic recovery is
gaining momentum after a pandemic-led slowdown.
They have also contributed to escalations in the cost of raw
materials for electronic goods in recent months. An index measuring
the price of inputs for electronics companies in March soared to
the highest level recorded in more than two decades of tracking,
according to IHS Markit, a market researcher.
The chip crunch has spared few companies, even some tech giants
that were mass buying to cushion themselves from the U.S.-China
trade fight. Microsoft Corp. said hardware sales were dented by the
shortage. Apple Inc. is likely to see sales fall by a
higher-than-typical amount in the current quarter, particularly
among its tablets and laptops, said Luca Maestri, Apple's finance
chief, on Wednesday.
Many semiconductors cost less than a can of soda. But they are
an important manufacturing component for 12% of the U.S. gross
domestic product, and reduced supply can boost prices for some
categories of products by as much as 3%, according to a recent
Goldman Sachs Group Inc. report. The firm estimates that 169 U.S.
industries are directly affected, a list that includes boat
building, breweries and fabric mills.
The chip shortage is even hitting corners of the economy without
direct links to semiconductors. Kansas City Southern, a freight
operator, said the semiconductor crunch, forced some car-making
plants in Mexico to halt production. Demand to move vehicles and
auto parts dried up, causing an 18% drop in first-quarter freight
volume compared with the previous year. Big-box retailer Costco
Wholesale Corp. said it is having issues securing TVs, computers
and other internet-connected home gadgets.
Semiconductors are a $442 billion industry, according to market
research firm International Data Corp., making it larger than the
GDP of Ireland or the market cap of Walmart Inc. Total
semiconductor unit shipments are expected to increase 13% this year
to a record 1.13 trillion units, according to IC Insights Inc., a
semiconductor-market researcher. Shipments grew 3% in 2020.
The types of semiconductors where supply is most squeezed are
lower-end chips common in electronics and appliances that consumers
splurged on during the pandemic, though even more cutting-edge
chips are increasingly in short supply, chip makers said.
Strained chip supplies have pushed Whirlpool Corp. to switch
production lines frequently, the company said, enabling it to churn
out various products based on which components are on hand that
day. Chief Executive Marc Bitzer told investors last week that the
Michigan-based manufacturer is raising prices by 5% to 12% in
various countries because of "rapidly rising inflationary
pressures" from the shortage of chips and other raw materials.
LG Electronics Inc., one of the world's largest appliance
makers, hasn't experienced manufacturing issues. But it is
reviewing production plans, anticipating that the semiconductor
shortage will last through the end of the year, said Don Kwack,
head of the company's home appliance and air solution business
unit.
"In all, 1,000 different types of chips are required across all
our home appliances," Mr. Kwack said.
Recently, Petoneer, in Shenzhen, China, has been forced to
suspend sales of some pet gadgets including a robotic cat toy after
its chip supply ran out. Sales executive Karl Peng said the
company's research-and-development team is exploring whether it can
swap in types of chips that are more readily available.
But numerous types of other semiconductors, especially
microcontrollers -- an inexpensive chip used widely in electronic
devices -- are almost nowhere to be found.
"For some products, if we do not switch to another solution, we
have no idea when we can have the chips to make them," Mr. Peng
said.
San Francisco-based Crave Inc., a sex-toy company, is
redesigning half of its product offerings this year to hedge
against the chip shortage and to carry out scheduled product
upgrades. With a typical product containing 30 different electronic
parts, including semiconductors, Crave began stockpiling chips late
last year as lead times started increasing, said Chief Executive
Michael Topolovac.
"We're sort of bracing for at least a year and, theoretically,
beyond two years," Mr. Topolovac said.
South Korean data server manufacturer DS&G Co. has seen its
lead time for the chips they buy more than double to 22 weeks from
about 10 weeks this year. Now, DS&G may not be able to complete
customers' orders starting as early as May, Chief Executive Seo
Joung-youl said.
Chicago-based Bartesian Inc., which produces countertop machines
that make cocktails from Keurig-like capsules, began in February
ordering chips that would cover manufacturing needs for tens of
thousands of more products than it projected it would sell this
year. But even with that forethought, Chief Executive Ryan Close
worries he won't get enough components for his product.
"We're not one of the big guys," Mr. Close said. "We're a small
startup."
Indiana-based LHP Telematics LLC, which sells to heavy
industrial vehicles, remains profitable despite not being able to
fulfill thousands of purchase orders from customers because some of
their contract manufacturers can't get enough chips to build
devices.
"Instead of making a nice bit of profit now, we're squeezed, and
it all just depends on if [things] get worse," said Travis Jones,
the company's CEO.
During the pandemic, California-based Vinotemp, which mainly
makes wine fridges and coolers, saw a sales boom for its new
product line of dishwashers, ranges and microwaves. This happened
despite freight issues and other surges in raw-material prices.
But now chip availability is a headache. On Monday, the company
received an email from its contract manufacturer in China saying
that it had stopped making some wine fridge models because it
couldn't secure the chips needed, said India Hynes, Vinotemp's
CEO.
"I don't know how deep it's going to go," Ms. Hynes said.
Write to Eun-Young Jeong at eun-young.jeong@wsj.com and Dan
Strumpf at Dan.Strumpf@wsj.com
(END) Dow Jones Newswires
April 30, 2021 08:00 ET (12:00 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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