The semiconductor chip industry is a vital in the creation of many of the products we use everyday. From smartphones to modern fridges, gaming consoles and even car production, these chips are a key component of technology that aids modern living today.
Therefore, when there is a shortage in the supply of these important pieces of tech, issues can arise, which can in turn, impact the financial markets.
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Economic growth
The shortage in supply of computer chips has caused some concerns withregards to economic recovery, especially after the detrimental effects of the coronavirus pandemic. As an experienced investor would know, the economy of a nation is a fundamental factor that can influence the forex market.
Governments across Europe, the United States and China, are looking for ways to boost production. According to the trading platform Plus500, ongoing delivery issues have already resulted in tech giant Samsung being called to a meeting with President Biden regarding America’s microchip supply chain.
Biden also aims to aid with the chip shortage by implanting a new infrastructure bill that sees $50 billion put towards the research and production of semiconductors.
As well as the economy, leaders may be concerned about their nations’ security, as after all, semiconductor chips are also important in the creation of drones, fighter jets, and other critical military equipment.
For traders in forex, financial analysts expect that the chip shortage could well persist further into 2021, and therefore still bears its effects on the market across the whole of the year.
Technology sector
Although it is not necessarily an asset or commodity to directly trade in, the products in which they are used, are key to the growth of the technology sector as a whole. Samsung has recently revealed that this global disruption can cause a serious imbalance in supply and demand of semiconductor chips.
Samsung’s co-chief executive and mobile chief, Koh Dong-jin, said at a shareholder meeting:
“It is hard to say the shortage issue has been solved 100%. Samsung is working with overseas partners to meet demand.”
Amongst many factors impacting the supply end of the production line, the serious winter storm that hit Texas, caused Samsung to suspend the manufacturing of their chips in that area’s facilities – production of which supplies 5% of the world’s memory chips. This did not bode well for the world’s largest computer chip maker, as these types of factories have to run 24 hours a day to be economically viable, and as a result the semiconductor division of the company saw the lowest profit in years, in Q1.
For investors looking to the future of the technology sector, they will surely be waiting for the next release of the Samsung’s 2021 earnings guidance report, to determine their position in the relevant markets.
Car manufacturing
The car industry had already been coping with the shortage in chip supply due to the ongoing pandemic, but the sector was also hit by the halt in production because of the Texas freeze.
A surprisingly strong interest in vehicles at the end of 2020 meant that the demand was high whilst the supply of components was low. Companies were left short of chips as the manufacturers of these parts turned to the production ofhome electronics, rather than cars, during the supply shortage. There were fears that the disruption could cause a loss of billions in sales in the automotive industry.
Despite this, Mark Fields, former Ford CEO and senior advisor at TPG Capital, said to CNBC:
“The situation for automakers should get better in the second half of 2021, but the industry won’t fully recover until well into 2022.”
Other financial analysts have however, said that investors with holdings in the auto industry shouldn’t be too worried about the chip shortage. Anand Srinivasan, Bloomberg Intelligence analyst said:
“In the grand scheme of a $440 billion industry, the auto business is only around 9% of semiconductors. Although production might be hurt in the short-term, over the long-haul, strong demand will remain. You’re not going to go out and buy a bicycle because you couldn’t get your Audi A4.”
It is therefore believed that the lack of supply will stretch out demand, rather than hurting it, which is good news for those investing in the automotive industry.
