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The global semiconductor chip shortage appears to be getting worse for automakers in the short term, with some experts saying the situation could last until 2023 without significant changes.
It's already having a major impact on the auto industry, as companies have had to shut factories due to a lack of chips to build cars, which require more chips than ever as technology becomes more advanced.
Automakers could lose $210 billion in sales this year due to chip shortages, according to the latest data from AlixPartners, almost double the losses estimated in May.
President Biden met for a second time at the White House on Thursday with several major automakers, including Ford Motor Co. and General Motors Co., as well as some tech giants such as Apple Inc. and Microsoft Corp., to discuss how to deal with the shortage.
Interestingly, the government has been asking automakers to report their chip supplies and how much they want or need to buy, but hasn't heard much in response. This information could help them better determine the actual extent of the shortage. The US president could even force these companies to reveal this information through the Defense Production Act.
The Semiconductor Industry Association said chip factory output has increased 8% since the beginning of 2020 and is expected to increase chip production by 16% by the end of 2022.
Federal legislation that has passed the Senate but not yet the House could provide $52 billion in subsidies for domestic semiconductor manufacturing.
Automakers like Tesla are taking matters into their own hands and starting to make their own advanced chips or partnering with others who can help them.
Tesla stopped sourcing its most sophisticated chips from NVIDIA in 2016 and began creating and designing its own chips, while working with Samsung to manufacture them. The company developed a new microchip to train artificial intelligence (AI) networks in the pursuit of fully autonomous driving capabilities and demonstrated it at its "AI Day" last month.
Tesla on Friday released updated software giving select customers access to its Full Self-Driving Beta (FSD Beta) software, which the company said can automatically change lanes, navigate on highways, park cars and more without a human behind the wheel.
Volkswagen AG will follow Tesla's lead and design and develop - but not manufacture - its own chips for self-driving cars, Chief Executive Herber Diess said.
Mercedes-Benz began a partnership with Nvidia last year to develop new chips and software.
Intel’s chief executive said at Munich’s mobile show earlier this month that the company is looking to build new chip and high-tech manufacturing plants that can build designs from other partners. He cited a study that predicted semiconductors will account for 20% of automotive material costs by 2030, up from 4% in 2019.
Interestingly, this situation bodes well for fundamentally superior semiconductor stocks, one of the hottest new sectors right now.
Then there is United Microelectronics Corporation (UMC). Back in October 2020, I recommended this second-largest wafer foundry in Taiwan to growth investors.
The company has beaten Wall Street's earnings expectations for the past five consecutive quarters.
In July, UMC co-president Chien Shan-Chieh predicted that a global semiconductor shortage would continue until 2023 as COVID-19 boosts demand for the company's chips for cars and smart home devices.
A few weeks later, UMC reported Q2 earnings of $0.17 per ADS on revenue of $1.83 billion, up 89% year over year and 8% year over year. Consensus estimates called for earnings of $0.13 per ADS on revenue of $1.78 billion, so UMC posted an earnings surprise of 30.8% and a slight revenue surprise.
Company management commented: "Strong demand driven by 5G adoption and digital transformation supported our strong performance in the second quarter...Looking ahead, we expect demand to remain strong in the third quarter, driven by megatrends such as 5G and electric vehicles."
UMC shipped 2,440 wafers in the second quarter, up from 2,218 in the same period last year. UMC expects its wafer shipments to increase 1% to 2% quarter-on-quarter in the third quarter.
Recently, UMC has further expanded its influence in Taiwan's semiconductor industry and formed a strategic partnership with SMIC, an integrated circuit packaging and testing service provider. After exchanging shares with SMIC, UMC will become the company's largest shareholder, holding 9.09% of the shares.
UMC's shares have risen more than 41% so far this year. That easily outperforms the performance of the industry bellwether iShares Semiconductor ETF, which has risen more than 24% so far this year, or the S&P 500's 18% gain.
*Disclaimer: This article is originally written by the author. The content of the article is the author's personal opinion. Semiconductor Industry Observer reprints it only to convey a different point of view. It does not mean that Semiconductor Industry Observer agrees or supports this point of view. If you have any objections, please contact Semiconductor Industry Observer.
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