4 sectors hardest hit by the global chip shortage

Whether it is the COVID-19 pandemic, political sanctions, or higher demand than supply, one thing is clear: many manufacturers and industries are dealing with a massive global shortage of electronic parts, such as sensors, and semiconductors.

Unfortunately, some of the most significant economic sectors are taking the brunt of the problem, and the negative implications can be staggering and devastating. Here are the four sectors hit hardest by the worldwide chip shortage:

1.  Auto

While the global chip shortage hurts many industries, the punch is not equal. It is hitting the vehicle industry the hardest.

Initially, AlixPartners forecast that the direct losses that could be attributed to the global problem would reach €60 billion (about $73 billion US) by 2021. Even before the year is half over, losses have a climbed by 33% and could potentially balloon to €90 billion (nearly $110 billion US)  for the automotive industry alone.

The sore lack of enough sensors and other electronic parts is now forcing many automakers, including in the United States, to halt, slow down, or delay production temporarily. All these can mean three things:

  • A possibly higher unemployment rate
  • Slower economic recovery following the pandemic
  • Lower vehicle production

In fact, estimates suggest that total vehicles to come out this year will be up to 5 million fewer than previously thought. Volkswagen is planning to cut down its number of produced vehicles by at least 100,000, according to consultants at AlixPartners.

2. Consumer Electronics

Some experts blame the chip shortage in the automotive industry on the rapidly increasing demand for consumer electronics, particularly during the pandemic.

Desktop PCs were formerly experiencing a slow death with sales of laptops and mobile devices.

In a recent report citing Canalys, the worldwide PC market posted an increase of 55% in just the first quarter of this year—the highest it has been over the last 10 years. This is after the pandemic forced students to adopt virtual learning and employees to work from home.

While non-essential, gaming consoles are also doing well in the market. As of May 2021, another  forecast by Fortune Business Insight said that this consumer electronics sector could achieve a compound annual growth rate of 5.3% until 2027. By then, the revenues could reach $51 billion.

However, along with their popularity is the higher need for semiconductors and sensors. Unfortunately, those chips intended for cars are not suitable for consumer electronics and vice versa. Moreover, companies like Intel predict that it may take not months but years before the shortage can be properly addressed.

In the meantime, the shortage could lead to lower profitability for the companies or raise consumer prices, which means more people may not be able to afford the goods.

3. LEDs & Lighting Fixtures

The chip shortage also affected LED supply. According to recent reports, the COVID-19 pandemic slowed down or even stopped construction, remodeling, and improvement for residential and commercial properties.

This means that the demand for smart homes also slightly declined. Along with it, there’s not much demand for light-emitting-diode (LED) lights, which are considered to be a more sustainable option than halogen, incandescent, and fluorescent.

For this market segment, there’s less likely to be a chip shortage. Instead, the prices for this raw material could go down, making the product more cost-effective and competitive.

However, it is a different story for mini LED lights, which are currently used in many appliances and consumer electronics (such as televisions and smartphones). As early as the fourth quarter of 2020, many manufacturers that use these materials were already stockpiling; this is based on the data from OEMsecrets.com a comparison search engine for electronic parts.

In turn, prices for the commodity have gone up by as much as 10%, according to TrendForce. It devasted many companies’ inventories, which in turn, hurt their LED supply chain.

4. Power - Turbines and Solar

While most options for renewable energy are made of steel or aluminum, a part of their inner workings is controlled or managed by electronic parts, like semiconductors and sensors. And as expected, the chip shortage could mean a heavy blow for this growing industry.

Enphase Energy, for example, reported in February constraints in the semiconductor supply chain. In May, company shares dipped to $114.61 down from a six-month high of $213.76 on Jan. 7.

The chip shortage doesn’t have an exact timeline on when it will end, which may delay renewable energy goals and stall prices and, therefore, the adoption by consumers and businesses.

The best solution

Companies try to remedy the ongoing saga of the lacking semiconductors and sensors by stockpiling as much as they can, but doing so may also leave other businesses, especially small ones, with nothing.

The best solution is a combination of approaches that range from better diplomatic ties, a resilient supply chain, better inventory planning, stronger relationships with vendors, and even sound economic and trade policies.

Dan Dooley is an embedded systems engineer since 2015 with a passion for IoT, technology, and DIY. He provides a mix of advice, tips, and insights to engineers and their enterprises at the  Electronics Components Online blog. 

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