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Chip shortage to persist through 2022 as smaller players feel bigger impact

SNL ImageQUALCOMM Inc. CEO Cristiano Amon speaks at CES 2022.
Source: S&P Global Market Intelligence

Big-name chip manufacturers announced a slew of new products and partnerships at CES this year but made no mention of the ongoing chip shortage. For smaller players at the show, it was a much bigger topic of conversation.

At CES 2022, the annual technology trade show, QUALCOMM Inc. announced a partnership with AT&T Inc. to deliver 5G connectivity options for home and enterprise customers, as well as a collaboration with Microsoft Corp. to create custom chips that will control augmented reality glasses for use with metaverse apps. Qualcomm's CEO Cristiano Amon also confirmed that the company is partnering with a range of PC-makers to bring its Arm-based Snapdragon chips, which primarily power mobile devices, to PCs.

Meanwhile, Intel Corp. and Advanced Micro Devices Inc. both unveiled their next-generation range of desktop and laptop central processing units, while NVIDIA Corp. announced its most powerful graphics processing unit yet.

While analysts and experts expect chip shortages to continue throughout the remainder of the year, they believe the big chip companies have been able to adapt. Meanwhile, smaller tech players are feeling more of a pinch.

Size matters

Despite efforts to capture the imagination of consumers, smaller product vendors are being hit especially hard, said Michael Paxton, an analyst with Kagan, a media research group within S&P Global Market Intelligence. Paxton cited a conversation with a CEO of a small to midsize company who said the shortage of low-end microprocessors and microcontrollers was costing the firm significantly.

Many smaller vendors on the show floor were noncommittal on street dates for the products they were showing, even for products with planned 2022 release dates, said Kagan analyst Neil Barbour.

For big players, an abundance of financing and resources means that the shortage is less impactful.

"The 'big guys' like Apple Inc., Sony Group Corp., Samsung Electronics Co. Ltd., etc., are always at the front of the line when it comes to getting their hands on the chips needed to produce their products," Paxton said.

"Bigger is better" in the global consumer electronics and tech industries, especially with access to scarce components, he added.

Barbour said revenue trends for larger device and chip companies like NVIDIA or Sony indicate they are still able to produce enough units of goods to outpace historical topline trends. The big-name advantage means those companies can "retain excitement" around branding efforts and continue consistent sales, regardless of when the shortage abates, Barbour said.

Next-gen tech

The current chip shortage, persisting now for two years mainly due to the pandemic and U.S.-China trade war, may also have less of an impact on next-gen tech on display at CES that has yet to hit stores.

The trade show historically focuses on the future of technology and not current issues, Paxton said. Thus, it did not surprise him that the chip shortage was not a bigger topic of conversation.

Chipmakers and device-makers have some time with their upcoming devices to plan their supply chains and talk to suppliers, said Eric Oak, an analyst with Panjiva.

"Calling up your chip supplier and saying that you need 100,000 chips tomorrow is much different than saying you're going to need 100,000 chips a year from now," he said.

In the near term, headwinds are expected in the output of common household devices such as coffeemakers and washers, as well as automobiles, said Oak, since these applications use older, commonplace chips with more out-of-date processes.

Going forward

Analysts say the shortage will likely last through 2022 but that a greater abundance of chips will probably come next year.

In the long run, enabling greater geographic diversity in chip fabrication facilities would help offset shortages by reinvigorating demand and spurring competition, said James Sanders, an analyst with 451 Research.

The building of fabrication plants in the U.S., in particular, would work well for the chip space, given the vast amount of land the nation has, he said.

"Having centralization of any component that would be critical to any type of infrastructure comes with risk." He cited the 2011 Thailand floods that caused cascading hardware supply problems for over two years.

Steve Koenig, the Consumer Technology Association's vice president of research, told Market Intelligence at CES that new fabs in the U.S. would spur production of advanced chips needed for the rollout new-gen technologies like electric automobiles and aircraft.

Panjiva is a business line of S&P Global Market Intelligence, a division of S&P Global Inc.

451 Research is part of S&P Global Market Intelligence.