Will Intel Be Able to Benefit from Worldwide Chip Shortage

We have seen global efforts to create policies, new plants and marketplaces for semiconductors, yet unpredictable demand continue to cast doubt on what the future will bring.

As we are nearing end of 2023, the global chip shortage that was sparked in early 2020 due to the COVID-19 pandemic has still not fully recovered, and there is no clear indication on when it will end.

The reason why is because the digital electronic device today is nearly all powered by semiconductors, which contain silicon and are critical for creating integrated circuits, also referred to as microchips. So to simply put it, anything that require to compute or process information, such as smartphones, computers and even everyday appliances contains a chip.

Making of chips is not easy, there are estimates that chips can take as long as six months to produce. This is the very reason why Chip makers are saying ending the shortage is difficult as it takes years to build new factories and get it up and running ready for production.

Greater demand for integrated circuits is among many things the result of chip shortage.

Even before the pandemic, the semiconductor supply chain was already facing issue due to series of events like trade wars between the U.S. and China and Japan and Korea, which impacted commodity pricing and distribution.

On top of these, natural disasters, such as a drought in Taiwan and three plant fires in Japan between 2019 and 2021, contributed to raw materials shortages, according to Electronic Products & Technology.

One of the major buyer of semiconductors, the automotive industry began reducing the chip orders in 2020, it prompt the semiconductor industry shifting production to meet demand for other consumer applications.

Yet, in the second half of 2020 , demand for cars picked up again as people reduce the use of public transportation, this cause the demand to exceed the supply again, creating yet another challenge.

Another factor which contribute to the rapid demand acceleration would be the Internet of Things. So with these combined factor and variables, semiconductors, according to economic investment firm TS Lombard. begin to move ahead of oil as the world’s key commodity input for growth.

This create a scenario where some customers would buy up supplies more than what they need in case they run out for their operations.

One example would be Huawei stockpiled supplies in advance of U.S. tech bans on China earlier in 2023. These actions further push the chip shortage challenges.

The the semiconductor industry grows steadily and remains lucrative, In 2021, McKinsey estimated sales to grow by more than 20% to about $600 billion, with automotive, data storage and wireless industries leading the market.

The firm also predicts aggregate annual growth may average between 6% and 8% a year through 2030.

McKinsey has said if we assume an average price increases of about 2 percent a year and a return to balanced supply and demand after the current volatility, we could be looking at a $1 trillion industry by the end of the decade (2030).

The global semiconductor market rose 6.8% in 2020 compared to 2019. It was projected to grow from $573.44 billion in 2022 to $1,380.79 billion by 2029, at a compound annual growth rate of 12.2% in the forecast period, 2022-2029, according to Fortune Business Insights.

Besides the hard-hit automotive industry, the consumer electronics, industrial, smartphone, wired communications, and server and PC sectors have been impacted by the shortage of chips.

Makers of laptops, TVs, smartphones, cameras and gaming consoles ordered more chips because their products heavily depend on simple semiconductors:

Appliances such as refrigerators, dishwashers, washing machines and microwaves need semiconductors to control and regulate the flow of electricity and make appliances run more efficiently.

Personal computers have CPUs that act as their brain by executing instructions and calculations.

Mobile devices and smartphones use chips for communication, processing, memory and display — for example, smartphones have a chip to connect to a cellular network, a chip to enable touch screen input and a chip that stores a user’s data.

The consumer electronics industry had to raise prices in the face of shortages as demand exceeded supply and more people began working and going to school remotely and required more laptops, desktops and other systems.

However, because demand tends to be cyclical, the high demand for consumer electronics has tapered off.

With the world increasingly eager to use AI technologies, the ability to develop and implement AI systems in 2024 could potentially be hindered by the ongoing shortage of chips.

AI and GPUs require a special type of chip to train and deploy AI models as demand for AI computing power grows, Chris Miller, a professor of history at Tufts University and author of “Chip War: The Fight for the World’s Most Critical Technology,” told Marketplace.

They will be releasing their latest quarter earnings tomorrow (31 Oct) after market close, I would think that AMD’s management will strike a cautious tone in its forward guidance given the potential for slower near-term data center demand and a sluggish PC market.

As explained in the Marketplace article by Miller, as the economy slows, people are buying fewer smartphones, companies are spending less money updating their data centers.

But there is actually a boom and some shortages for some specific types of chips used for AI, this is becoming visible. The demand of such chips will only set to grow more.

If we compare these 3 major leaders in chip makers, we can see that Nvidia still leads in terms of data center revenue gains, but if we were to take cue from how Intel result is telling us.

We might see a decline in data center revenue for AMD as well, Nvidia might not suffer so much as the demand for data center related chips (e.g. GPUs) are still high.

If we noticed how the data center revenue of 3 major chip makers are stacking up, there are some predictions that show the chip shortage cause by mismatch between supply and demand. Chip manufacturers are not able to address this quickly.

There have been ongoing news of some manufacturers scaling up production or adjust their production profile, but this will not be able to address the chip shortage.

AI, electric and autonomous vehicles, the Internet of Things and 5G and 6G will drive future chip demand.

Despite the challenges, the SIA says the long-term outlook for the semiconductor industry remains strong, with initiatives and policies being made to increase semiconductor research and production globally.

The CHIPS Act which was passed in 2022, and has begun in 2023, this act was enacted by the U.S. government to provide needed semiconductor research investments and manufacturing incentives and to reinforce America’s economy, national security and supply chains.

The goal of the $280 billion expenditure is to prevent U.S. industries from falling prey to similar semiconductor supply chain chaos in the future.

In a push to bolster domestic semiconductor production overseas, the European Union has approved the EU’s Chips Act, with the goal of producing 20% of the world’s semiconductors by 2030, Bloomberg reported.

Chip makers including Intel and STMicroelectronics have announced their plan for new plants at sites in Europe. Intel announced it will make its chip manufacturing and foundry unit a stand-alone business but remain under its corporate umbrella. Now, it will compete for business like other external suppliers.

Intel said the move will help it achieve its stated cost savings goal of more than $8 billion to $10 billion by the end of 2025.

In late September, the Partstack Marketplace launched as a semiconductor chip search platform for engineers, designers and equipment manufacturers.

Partstack aims to bring global semiconductor buyers and sellers together to quickly locate, buy or sell millions of hard-to-find semiconductor parts from over 2,500 unique manufacturers, according to its maker, semiconductor and electronics solutions provider Partstack Corporation.

Partstack offers datasheets, guides for chip testing best practices and counterfeit component reporting features. It provides a catalog of component pricing and availability data from global suppliers, the company said.

Even though Intel, TSMC, Texas Instruments and Samsung — the world’s largest memory chipmaker — have all announced plans to build fabs in the U.S., that may not end the chip shortage. For now, the status of increased chip production in the U.S. remains uncertain.

I am more interested to see which Chip makers would be able to take advantage of this chip shortage.

If we consider how PC market CPU chips demand is like, there are also the IoT and SoC which require x86 CPU, if Intel is able to capture the same amount of market, similar in Q2 2023.

In 2024, I would expect more IoT project to come onboard, because there will be new building being build, and hotels are now equipped with IoT. My recent trip to China, I have been to at least 2 hotels which does not require any human intervention for maintenance and even room service.

Appreciate if you could share your thoughts in the comment section whether you think Intel would stand to gain from chip shortage as they are increasing their sites in Europe and at the same time, there are also demand for partnership.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.