Semiconductor chips fried in Omicron wave

·2-min read

Supply of semiconductor chips will remain tight despite companies learning to live with COVID-19, Moody's Analytics has warned.

Chips are used in thousands of devices and the shortage will continue in 2022, senior economist Tim Uy said in a new report released on Monday.

But it is not expected to get much worse, as more economies achieve widespread vaccination coverage.

The Delta surge in mid-2021 hit key countries in the semiconductor supply chain - Malaysia, Vietnam, Taiwan, Korea and Japan.

At that time, less than half the population in those countries had received one dose of a COVID-19 vaccine, and only one-quarter was fully vaccinated.

This meant the surge in cases led to significant halts in production, which caused a ripple through the rest of the chain as factory closures in one country could stymie production in Japan.

"The vast majority of the population in major chip-producing countries worldwide is now vaccinated, compared with far lower numbers during the Delta spike in mid-2021," Mr Uy said.

But with the Omicron variant surging in many countries, particularly in Europe and North America, he said a return to border restrictions and production dislocations was on the horizon.

Although there were signs of the chip shortage easing, the average lead time in December was a record 25.8 weeks, six days longer than in November, according to the latest report by Susquehanna Financial Group.

"We are most likely to see an impact in output from Chinese plants, largely due to China's zero-COVID policy," Mr Uy said.

The major Chinese manufacturing city Xian has been under lockdown for two weeks and can't or won't say when it will end.

South Korea's Samsung Electronics has been affected and Powertech Technology's Xian plant is operating at less than half its capacity.

One of the world's biggest chip suppliers Micron Technology has warned the lockdown will delay the supply of its memory chips, which are widely used in data centres.

Earlier in the pandemic, many companies that used just-in-time manufacturing were hit when key supplies ran out.

Since then, Sony has doubled orders for chips used in its gaming consoles and Tesla has reduced its dependence on a few key suppliers.

But the long-term constraints in expanding supply for the chip industry still apply, Mr Yu said.

The major chip manufacturers in Taiwan, Korea and China have all announced plans to expand operations, with government support.

The chip types most likely to grow the most in the near term are those used in logic and sensor applications, with 5G technology and electric vehicles further driving demand.

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