Samsung warns of severe chip crunch while delaying key phone

SAMSUNG electronics Co. warned it’s grappling with the fallout from a “serious imbalance” in semiconductors globally, becoming the largest tech giant to voice concerns about chip shortages spreading beyond the automaking industry.

Samsung, one of the world’s largest makers of chips and consumer electronics, expects the crunch to pose a problem to its business next quarter, co-chief executive officer Koh Dong-jin said during an annual shareholders meeting in Seoul. The company is also considering skipping the introduction of a new Galaxy note—one of its best-selling models—this year, though Koh said that was geared toward streamlining its lineup.

industry giants from Continental AG to renesas electronics Corp. and innolux Corp. have in recent weeks warned of longer-thananticipated deficits thanks to unprecedented Covid-era demand for everything from cars to game consoles and mobile devices. Volkswagen AG said this week it’s lost production of about 100,000 cars worldwide. in north America, the silicon shortage and extreme weather have combined to snarl more production at Toyota Motor Corp. and Honda Motor Co. The fear is the crunch, which first hit automakers hard, may now disrupt the much larger electronics industry.

“There’s a serious imbalance in supply and demand of chips in the it sector globally,” said Koh, who oversees the company’s it and mobile divisions. “Despite the difficult environment, our business leaders are meeting partners overseas to solve these problems. it’s hard to say the shortage issue has been solved 100 percent.”

Samsung, the world’s largest smartphone maker, is working with overseas partners to resolve the imbalance and avert potential setbacks to its business, its co-ceo said. its shares slid 0.6 percent in Seoul on Wednesday, while suppliers and Asian chipmakers including Taiwan Semiconductor Manufacturing Co. and SK Hynix inc. also fell.

Chipmakers like Samsung and TSMC are at the forefront of a global effort to plug a shortfall in supply of semiconductors, the building blocks of a plethora of consumer gadgets. The deficit has closed auto plants around the world and now threatens supply of other products. While the Korean company is the leading maker of madeto-order silicon after TSMC, it relies on external suppliers and manufacturers for certain parts like power management and radio chips.

Larger-than-anticipated Covid-era demand for smartphones has also stretched stores of Qualcomm inc.’s Snapdragon chips, the go-to processors for mobile devices. Qualcomm designs the chips, known as app processors, but relies on Samsung and TSMC to produce them and the Taiwanese chipmaker’s capacity has been strained.

“The tightened supply of Qualcomm AP chips produced by TSMC is affecting everybody except Apple,” said MS Hwang, analyst at Samsung Securities. “PCS will soon be hit due to the short supply of display driver ics, and the profitability of TV will be affected by soaring LCD panel prices.”

Compounding matters, Samsung’s own production got sideswiped last month. its fab in Austin, texas—which makes chips both for internal and external consumption—was sidelined in February by statewide power outages and hasn’t resumed full production. The resulting shortfall in production of Qualcomm 5G radio frequency chips could reduce global smartphone output by 5 percent in the second quarter, research firm Trendforce estimates. But the outage there is likely to affect Samsung’s mid-tier phones and laptops more than its top-of-the-range models or server chips, said Greg roh, a senior vice president at HMC Securities.

“if Samsung is publicly talking about future products, you know that the silicon crunch is serious,” said Avi Greengart, analyst and founder of consultancy Techsponential.

Carmakers got hit first by the chip crunch in part because of poor inventory planning and are expected to miss out on $61 billion of sales this year alone. Honda Motor Co. on Wednesday said it will temporarily suspend some production next week at a majority of US and Canada plants, underscoring the deepening crisis.

Some analysts say shortages could get mostly ironed out in coming months. But the concern is that tight supply in certain segments—such as in more mature semiconductors where it takes time to build capacity—could eventually throttle the broader consumer electronics industry and jack up prices if it persists. Semiconductors are now near the top of official agendas from Washington to Brussels.

At the same time, China’s insatiable appetite for chips—fueled in part by its rapid recovery from the pandemic—and inventory stockpiling by local companies is fueling demand. Sales for the country’s chip industry climbed 18 percent to 891.1 billion yuan ($137 billion) in 2020, China Semiconductor industry Association Chairman Zhou Zixue told a conference in Shanghai on Wednesday.

“The ic shortage will be a problem to frustrate the supply chain in next six months, ”said Charles Shum, an analyst with Bloomberg intelligence.