Semiconductor Shortages Will Likely Last “Well Into 2022”

July 22, 2021


Manufacturers, wholesalers, and other businesses note impacts in terms of earnings and inventory levels from semiconductor shortages.

The CEO of home appliance manufacturer Electrolux, for example, said during the company’s second-quarter earnings call this week that the company is struggling “to meet the changing consumer demand mix and, in some cases, incur outright shortages” due to the semiconductor shortages.

Another example is from the global supplier of paints, coatings, and specialty materials, PPG Industries noted in its second-quarter earnings call that “our automotive OEM business was impacted most significantly… as we estimate that more than 2 million fewer cars were built than initially expected during the quarter. This impacted our sales by about $100 million, higher than $40 million more than we expected in April.”

Indeed, more businesses will likely report impacts during their quarterly updates. Goldman Sachs found that the semiconductor shortage touches 169 industries in some way. However, the most significant impact has been on the automotive industry.

Automobile inventories are at their lowest point due to semiconductor shortages, and as a result, sales are being impacted. From a near-record annual pace of 18.6 million vehicles in April, sales slowed to a 17.1 million rate in May and fell to 15.7 million in June, estimates Emmanuel Rosner, an analyst with Deutsche Bank.

Industrywide, inventory fell to 33 days’ supply at the end of May, according to Cox. That’s about half of what is considered healthy and down 44% from a year ago.

“The current semiconductor capacity shortage is being driven by both a structural increase in long-term market demand and a short-term imbalance in the supply chain due to uncertainties from COVID-19 and geopolitical tensions. We expect our capacity will remain tight throughout this year and extend at least into 2022,” said C. C. Wei, Vice Chairman & CEO of Taiwan Semiconductor Manufacturing, the largest semiconductor manufacturer, during the company’s July 15 second-quarter earnings call.

As a result, many automobile manufacturers are implementing changes in their operations. GM and Ford, for example, have developed creative workarounds to mitigate the semiconductor shortage.

GM announced in June that it would prioritize semiconductor usage and streamline production line efficiencies by increasing production of various vehicles in Michigan and Missouri from mid-May through mid-July, depending on the facility. Meanwhile, GM production at certain manufacturing facilities in North America, Asia, and South America will continue to be impacted by the global semiconductor shortage through June and July. As global semiconductor supply recovers, the company expects to implement similar actions in markets worldwide to resume production and increase deliveries to dealers through the second half of the year.

Meanwhile, Ford is considering sending new vehicles without all of their semiconductor chips installed to dealers, who will complete their assembly when the parts become available, according to trade publication Automotive News.

As noted by FedEx and UPS in recent earnings announcements, business-to-business (B2B) shipments are improving. For UPS, B2B volumes represented about 40% of total volumes, improving from an average of 30% in 2020. However, semiconductor shortages could impact both last-mile providers’ total volume mix.

 


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Spend Management Experts has united with Transportation Insight to become North America’s #1 provider of small parcel management and optimization services.  Our team of best-in-class analysts employs cost modeling techniques to help clients optimize their supply chain spend, reducing costs by 20% or more.  Our approach is non-invasive to daily supply chain operations as we employ unparalleled market intelligence and proprietary cost modeling technology, targeting hidden costs and identifying savings opportunities. After establishing the success criteria, SME leverages proven project plans, data warehousing, and milestone documents to ensure an optimized and implementable solution. We build strong business cases based on your data to negotiate better terms, pricing, and service for our clients. We deliver your competitive edge.

Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

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Semiconductor Shortages Will Likely Last “Well Into 2022”

July 22, 2021


Manufacturers, wholesalers, and other businesses note impacts in terms of earnings and inventory levels from semiconductor shortages. The CEO of home appliance manufacturer Electrolux, for example, said during the company’s second-quarter earnings call this week that the company is struggling “to meet the changing consumer demand mix and, in some cases, incur outright shortages” due to the semiconductor shortages. Another example is from the global supplier of paints, coatings, and specialty materials, PPG Industries noted in its second-quarter earnings call that “our automotive OEM business was impacted most significantly… as we estimate that more than 2 million fewer cars were built than initially expected during the quarter. This impacted our sales by about $100 million, higher than $40 million more than we expected in April.” Indeed, more businesses will likely report impacts during their quarterly updates. Goldman Sachs found that the semiconductor shortage touches 169 industries in some way. However, the most significant impact has been on the automotive industry. Automobile inventories are at their lowest point due to semiconductor shortages, and as a result, sales are being impacted. From a near-record annual pace of 18.6 million vehicles in April, sales slowed to a 17.1 million rate in May and fell to 15.7 million in June, estimates Emmanuel Rosner, an analyst with Deutsche Bank. Industrywide, inventory fell to 33 days’ supply at the end of May, according to Cox. That’s about half of what is considered healthy and down 44% from a year ago. “The current semiconductor capacity shortage is being driven by both a structural increase in long-term market demand and a short-term imbalance in the supply chain due to uncertainties from COVID-19 and geopolitical tensions. We expect our capacity will remain tight throughout this year and extend at least into 2022,” said C. C. Wei, Vice Chairman & CEO of Taiwan Semiconductor Manufacturing, the largest semiconductor manufacturer, during the company’s July 15 second-quarter earnings call. As a result, many automobile manufacturers are implementing changes in their operations. GM and Ford, for example, have developed creative workarounds to mitigate the semiconductor shortage. GM announced in June that it would prioritize semiconductor usage and streamline production line efficiencies by increasing production of various vehicles in Michigan and Missouri from mid-May through mid-July, depending on the facility. Meanwhile, GM production at certain manufacturing facilities in North America, Asia, and South America will continue to be impacted by the global semiconductor shortage through June and July. As global semiconductor supply recovers, the company expects to implement similar actions in markets worldwide to resume production and increase deliveries to dealers through the second half of the year. Meanwhile, Ford is considering sending new vehicles without all of their semiconductor chips installed to dealers, who will complete their assembly when the parts become available, according to trade publication Automotive News. As noted by FedEx and UPS in recent earnings announcements, business-to-business (B2B) shipments are improving. For UPS, B2B volumes represented about 40% of total volumes, improving from an average of 30% in 2020. However, semiconductor shortages could impact both last-mile providers’ total volume mix.  


ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts has united with Transportation Insight to become North America’s #1 provider of small parcel management and optimization services.  Our team of best-in-class analysts employs cost modeling techniques to help clients optimize their supply chain spend, reducing costs by 20% or more.  Our approach is non-invasive to daily supply chain operations as we employ unparalleled market intelligence and proprietary cost modeling technology, targeting hidden costs and identifying savings opportunities. After establishing the success criteria, SME leverages proven project plans, data warehousing, and milestone documents to ensure an optimized and implementable solution. We build strong business cases based on your data to negotiate better terms, pricing, and service for our clients. We deliver your competitive edge. Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

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