The Global Chip Shortage has been an ever-evolving issue in the consumer electronics industry, compounded both by the onset of the fourth industrial revolution and the unusual market reaction to the COVID-19 pandemic, it appears everything has been impacted to varying degrees. The increased significance of microchips to global production networks has been highlighted on a political level, with US Senators earmarking $50 billion to build two new chip factories in New York as part of the Government’s wider tech bill to promote both semiconductor production and research. The EU has also outlined its aims to double chip manufacturing by 2030 amid concerns around ‘digital sovereignty’. With even more countries, including China, discussing semiconductor self-sufficiency as national priorities, it suggests that in the post COVID-19 digital economy, silicon may well become the defining resource as oil was in earlier economic periods.
However not all industries are affected equally, and this has to do with the nature of semiconductor manufacturing. This is an extremely competitive business that requires massive capital investments and expertise. The bulk of global supply is concentrated in Asia and a single chip fab manufacturing plant costs approximately $20 billion to build, with a startup of 3 years and a limited lifecycle before the equipment needs to be replaced. On top of this, production is further concentrated amongst three industry giants (Intel, Samsung and TSMC). This means that supply is essentially fixed, and it can only be increased very slowly in tandem with a long-term plan to expand capacity. These factories usually run at 80/90% capacity, with the remainder being available for other companies to buy up when accounting for peaks and troughs in demand. As a result, industries and companies that were able to match their internal forecasts for consumer demand have been able to source the required computer chips. However, those which have experienced volatile swings in demand have found themselves either without product, or subject to extreme hikes in price.
With regards to the impact of this chip shortage on the audio market, industry feedback suggests that the audio sector doesn’t currently seem too worried about the fulfilment of their current orders, and the recent market performance indicates that the shortage hasn’t prevented growth so far. This is notably confirmed by Futuresource’s recently published Home Audio Quarterly market report, which highlights that Bluetooth Speakers and Smart Speakers have experienced shipments growth of 35% and 23% year on year in Q1 2021, representing 13.5 million and 20.3 million devices respectively. More premium devices like soundbars enjoyed even stronger growth of 40% year on year for Q1 2021, with product volumes of 4.6 million. Longer term, Futuresource anticipates that the primary concern will be whether chip manufacturers have any capacity to take up additional orders in the short to mid-term, and if this will force audio companies to streamline their product range, rely on older popular models, or pull the plug on products that do not immediately perform to expectation. The global chip shortage also means that while companies can sell what they planned to produce, they will struggle to sell beyond that. The concern is even greater for manufacturers that planned to incorporate more smart technologies into their future product pipeline.
There is no doubt that the issue of the global chip shortage will eventually be resolved, but for the next two to three years, manufacturers will have to rely on the capacity of present supply network and the 20% margin of redundancy to slowly clear the backlog until additional factories and America, Europe and China come into operation. In summary, Futuresource does not expect the global chip shortage to negatively impact market forecasts. Instead, it will cap the potential of the home audio market from exceeding growth forecasts, even if demand happens to surge for as long as shortages continue.
For more information about our latest Home Audio Quarterly tracker, or to discuss our Consumer Audio services in more detail, please get in contact with Leon Morris via firstname.lastname@example.org.