Rising cases of the Omicron variant of Covid-19 has swept the world off its feet and seemingly is going to affect the global chip market as well. The credit rating firm Moody’s has said that the ongoing global chip shortage will continue to prevail in 2022 as well, however, the situation wouldn’t get worse. It is expected that there might be a few production disruptions, but the situation is anticipated to remain in control all thanks to the greater vaccination status in the chip markets as well as an enhanced supply chain management by the chip-producing companies.
The Reason Behind the Chip Shortage and Current Scenario
The imbalance in the chip market began when the pandemic hit the world as supply was greatly affected due to the closing of factories and demand surged because of a shift in remote work culture. The imbalance between supply and demand worsened with time. The situation of global chip shortage majorly deteriorated during the spread of Delta variant in 2021 which affected the countries such as Taiwan, Japan, Malaysia, Vietnam and Korea which are some of the major semiconductor suppliers in the world. At that point in time, only about a quarter of the population in these countries was fully vaccinated.
The report from Moody’s reviewed by ET Telecom suggests that the situation wouldn’t go as bad as it did during mid-2021 as more than half of the population in these countries are now vaccinated. The initial wave of Covid-19 severely impacted the chip supply market because of their production model. Many of the chip suppliers followed the just-in-time manufacturing method and found themselves unprepared to deal with the shortage in supply of raw materials and other key factors such as chips and electronic components that hinder production.
However, learning from their mistakes companies are now focusing on maintaining inventories and are exploring other sources to keep the production intact. According to the report, over the period of last one year, capital expenditure from companies has grown 15% and the prices have also been rising which is necessary to level the soaring demand. The scenario has turned out to be highly beneficial for the chip manufacturers as sales have gone up by a significant 25% in 2021. However, the growth is expected to be moderated this year with only a 10% surge expected in total sales. With major chip manufacturing countries looking to expand domestically as well, India has also announced a scheme to attract semiconductor manufacturers to open labs in India.