Qualcomm expects the chipset crisis that has plagued the mobile industry and beyond during the pandemic to ‘stabilise’ this year.

That is the view of Chris Patrick, SVP and general manager at the chipset manufacturer. The shortages have hindered mobile phone vendors, along with other sectors such as the automotive industry.

They have resulted from big demand for consumer electronics, and factors including factory shutdowns caused by COVID-19 and even extreme weather conditions in some places – including droughts in Taiwan and severe snowstorms in the US.

But Patrick and Qualcomm now expect the chipset industry to be more predictable from next year.

“This situation is stabilising, so in 2022 we see a period of transition from the somewhat unpredictable times of last year to what we think will be a more predictable and steady 2023,” he told Mobile News.

“It’s difficult to envision that we’re in a place where supply and demand are back to pre- pandemic levels, but we expect it to start to feel more that way.”

Chip shortages have presented an ongoing problem for the industry throughout 2021. These have been due to the pandemic, excess demand, and factory shutdowns caused by COVID-19 and even extreme weather conditions in some places.

Different sectors have been affected, with the smartphone industry one of the last to be hit.

Major smartphone vendors, including Apple, Samsung and Oppo, have felt the impact as they have suffered supply-chain shortages and delayed launches.

And component shortages have contributed to smartphone shipments falling 6.7 per cent year-on-year in the third quarter, worse than IDC’s previously predicted decline of 2.9 per cent.

Compounding the challenge, IDC senior research manager Marta Pinto believes demand has also been greater than expected due to adoption of connected devices, the widespread move to 5G and innovation on all technologies.

“Manufacturers are now going to struggle to deliver enough volumes for orders, and distributors will be running short inventories to try and meet demand,” she says.

One possible outcome of the situation, says Pinto, is increased cross-channel and cross-border commerce as both distributors and channels bid to fulfil this demand to keep customers engaged and monetise their investments in devices, logistics and operational improvements.

Price rises

Counterpoint’s VP and research manager Peter Richardson adds to this by discussing how the price of components has risen.

He says that some vendors may be able to absorb some of these extra costs, but that people should not be surprised if prices remain higher than they might otherwise have expected, or even rise in some cases.

To compound that, Richardson adds that other things like transportation have become dramatically more costly too.

Pinto says smartphone shipments have been further affected by added strain on supply chains, additional lockdowns in countries in Southeast Asia, work restrictions and a slower manufacturing process.

The struggles counteract the progress of advanced economies and recovery from the pandemic-related recession, factors that meant many analysts had predicted a much better Q3, according to CCS Insight VP Marina Koytcheva.

“We estimate that 320 million smartphones were shipped in 3Q21, down 7.5 per cent from 3Q20,” she said.

“What is more, until a few months ago the negative effect of the chipset shortage was seen mostly in the older products and in the lower price tiers. “The expectation that premium smartphone makers with strong buying power would be sheltered from the shortage turned out to be optimistic, and the fact that even Apple has been affected shows how profound the supply shortages are.”

Richardson adds that in this situation, smartphone vendors are now focusing on products that drive revenue rather than volumes.

“Some are switching components from other product categories – for example, Apple diverting components from iPad to iPhone,” he says.

“More broadly, the Chinese market remains tepid, with consumer demand reflecting ongoing pandemic concerns and weaker economic conditions in the country.”

And with big names like Samsung and Xiaomi seeing a decline in units shipped – by 14 per cent and five per cent respectively year-on-year in the third quarter – can they bounce back to pre-pandemic levels?

Richardson says both brands are structurally fine and expects them to recover, while Koytcheva says an ageing phone base and demand for replacements held back by short supply “will be unleashed once product availability in lower price tiers improves.”

Pinto adds: “The short-term industry situation does not mean a long-term impact on these companies’ strategies. The main issue is who will be able to endure the added stress?” She says that with additional financial commitments to be taken – such as for component sourcing, transportation, marketing and channel sponsorship – only those with enough financial depth will be able to thrive.

Pinto believes that Samsung has enough diversity in its business segments to cope with flat growth or losses to an extent, whereas Xiaomi is a relatively new vendor and will have to rely on investors remaining firm.

Meanwhile, Richardson does not expect the crisis to improve much over winter.

“The demand-supply situation is not yet balanced and is unlikely to become so for several quarters,” he says.

Happy holiday? 

The holiday season is usually a great time for manufacturers, retailers and vendors, but they may have to wait before seeing a resurgence in growth amid the shortages and the ongoing pandemic.

And Pinto warns: “Investors should be cautious about how much capacity they are creating today to respond to an abnormal demand, as if there is overcapacity in the future that will drive prices down, damaging their return on investment.”

Analysts think the situation will eventually start to get better, even though we will only see gradual improvements from now until late 2022 and growth is unlikely to return to pre-pandemic levels at that point.

And Koytcheva at CCS Insight also sees some light at the end of the tunnel if the vaccination regime remains effective in reducing the spread of COVID-19, allowing continued production through factors such as factories staying open.

“How the COVID-19 situation will develop during the winter remains a risk,” she says. “But high levels of vaccination in countries – key to production of mobile phones – brings optimism that we are in a much better position compared to last winter.”

The chipset shortage crisis is not expected to improve until at least mid-2022, according to industry analysts.

The shortages have impacted many sectors throughout much of 2021, and factors such as the pandemic, rising prices, lack of components and factory closures have all contributed to the problem.

Sectors impacted include the consumer electronics industry, in areas such as mobiles, computers and gaming appliances, as well as car manufacturing.

Counterpoint VP and research manager Peter Richardson believes the worst may be over with, but that the smartphone industry will still struggle to return to pre-pandemic levels.

“The demand-supply imbalance is likely to continue throughout much of 2022, but will improve gradually,” he said.

“The current problems have been a long time in the making; there’s no quick fix.”

CCS Insight VP Marina Koytcheva agrees that chipset supplies will not improve quickly, but is optimistic that there will be some growth in 2022. “How the COVID-19 situation will develop during the winter remains a risk, but high levels of vaccination in countries – key to production of mobile phones – brings optimism that we are in a much better position compared to last winter,” she said.

Global smartphone shipments dropped six per cent in the third quarter as component shortages continued to hurt the smartphone market.

That’s according to research firm Canalys, which said that vendors struggled to meet demand for devices.

Samsung led the way in the quarter overall, with a 23 per cent market share. The vendor was followed by Apple with a 15 per cent share, coming narrowly ahead of Xiaomi on 14 per cent.

Fellow Chinese vendors Vivo and Oppo completed the top five, with each taking a 10 per cent share.

Canalys principle analyst Ben Stanton warned that chipset shortages will continue to hurt the industry well into next year.

“The chipset famine has truly arrived,” he said. “The smartphone industry is striving to maximise production of devices as best it can.

“On the supply side, chipset manufacturers are increasing prices to disincentivise over-ordering, in an attempt to close the gap between demand and supply.

“But despite this, shortages will not ease until well into 2022. As a result of this, as well as high costs of global freight, smartphone brands have reluctantly pushed up device retail pricing.”

Winter worry

Stanton has warned consumers to be less expectant of smartphone discounting this year as the chipset shortages continue, while adding that many channels will be worried heading into a key time of year for sales.

“Many channels are nervous heading into important sales holidays, such as Singles’ Day in China, and Black Friday in the West.

“Channel inventories of smartphones are already running low, and as more customers start to anticipate these sales cycles, the impending wave of demand will be impossible to fulfil.”

As if 2020 didn’t throw the world enough problems with the global pandemic, this year there’s a new pandemic of sorts impacting heavily on the smartphone market.

Thankfully it’s not another virus; it is instead a global chipset shortage, which has been referred to by some as ‘chipageddon’.

This has been born in part thanks to the drought in Taiwan, where much of the world’s semiconductors are produced.

The coronavirus pandemic hasn’t helped, with factories shut down as part of measures against the virus.

This crisis is expected to further slow economic recovery post-Covid, having hit not only mobile phone vendors, but also a wide range of other sectors including the car, TV and games console industries.

Such has been the disruption that car manufacturer Jaguar Land Rover is temporarily shutting down two of its UK factories.

Chips are effectively the brain of the electronics device, so are critical components. In short, if there’s no chipset, there’s no device.

So, what does the semiconductor shortages mean for the mobile industry?

Vendors hurt

The situation, which is expected to lead to a spike in chipset prices, is hurting all the big smartphone vendors, with Apple, Samsung and Huawei among the list of big names to acknowledge the issue.

The shortages delayed Apple’s iPhone 12 launch last year by a month, and while the vendor seems to be shipping plenty of iPhones (a record- breaking 90.1 million in Q4 2020, according to IDC), it has reportedly faced issues with MacBook and iPad production.

The impact has been felt too by the company’s biggest rival, Samsung, which at one point also had to wrestle with the temporary closure of one of its semiconductor factories in Austin, Texas, due to a snowstorm.

“The current volatility of the semiconductor market is being felt across the entire technology industry and beyond,” said Samsung in a statement.

“At Samsung, we are making our best efforts to mitigate the impact and will continue to work diligently with our partners to overcome supply challenges.”

Oppo, too, has confirmed that it is keeping tabs on the situation.

“The industry is facing a stretched supply chain, which requires the concerted efforts of the whole industry to overcome,” a spokesperson told Mobile News. “Oppo has always adopted a proactive procurement strategy for core components, allowing it to guarantee product delivery to consumers.”

And one well-established vendor has been a victim of the shortages, says CCS Insight chief of research Ben Wood.

LG, which announced this month that it was exiting the mobile industry, was not helped by the chipset situation, according to Wood in his blog post titled ‘LG: The chip that broke the camel’s back’.

“It’s no coincidence that this decision comes amid a global chipset shortage that’s forcing manufacturers to outmanoeuvre each other in a mad scramble for parts,” he wrote.

“Unlike its domestic rival Samsung, LG has undoubtedly found it hard to secure stable chip supplies and other components for its smartphones. This added hassle of bringing devices to market, and doing so at a loss, is likely to have been a major factor in LG’s cut-or-continue decision.”

Sanctions

Huawei’s rotating chairman Eric Xu took aim at the US for causing the crisis at the company’s Analyst Summit in April, saying the country’s sanctions against the vendor have punished the global semiconductor industry.

“The US sanctions is the main reason why we are seeing panic stockpiling of major companies around the world,” he said, adding that many vendors now have up to six months’ worth of supply stockpiled.

“These sanctions are turning into a global supply shortage which could trigger a global economic crisis shortly.”

He added: “The key is to restore global trust and cooperation in the semiconductor industry.”

Philip Solis, research director for smartphone semiconductors and connectivity at IDC, is also critical about the situation, but more in the direction of vendors for stockpiling.

“It is an issue that has been exaggerated by the psychology of device vendors ordering more components than they need just in case there is an issue with supply.

“A lot of the problem around the mobile phone space has to do with phone OEMs being overly cautious and ordering extra inventory so that they do not get caught short, and that is actually causing more tightness in the market. Chip fabrications are very close to 100 per cent utilisation.”

Smartphone resilience

But how big a part has the pandemic played in the global shortages?

Solis says that although down on pre-pandemic numbers, the smartphone market has performed better than anticipated.

“Some of the problem has been caused by the unexpectedly resilient smartphone market during the pandemic,” he says.

Yet he is more hopeful for the smartphone industry than for car manufacturers.

“While the automotive industry faces real shortages because they did not order enough chips, the smartphone market is in a better position. It may see overall shipment numbers slightly curtailed, but not drastically.”

Other factors have played a part too, adds Solis, who points to the ongoing drought in Taiwan and the Texas winter storm.

But CCS Insight senior director for research Wayne Lam says that the unexpected shift to a more remote lifestyle for both work and everyday life has also caught chipset manufacturers off guard as demand for electronic products soared.

The closures in Texas impacted Samsung, who had to halt production at their Texas facility temporarily during the unforeseen weather conditions.

“As we all adjusted to our new normal of working in quarantine, there remained an unexpected strength in the computer, mobile and gaming market – which caught the foundries out in terms of manufacturing capacity.”

Shipments hit

The impact of the chipset crisis will be felt by the world’s leading smartphone vendors in the short term, according to CCS Insight, which predicts that this will contribute to smartphone shipments remaining weak in 2021.

The analyst firm expects shipments to reach 1.67 billion this year, up six per cent from last year, but down eight per cent from the pre-pandemic figure in 2019.

“The current shortage of semiconductors is a direct consequence of extraordinary global events that have upended the entire supply chain for electronic devices,” says Lam.

He anticipates that the shortages will have a knock-on effect on how vendors approach the market, with premium handsets prioritised over lower- value models.

“Smaller manufacturers are far more exposed than market leaders Samsung and Apple, leaving sub-scale players in a tough situation,” he says. “We believe phone makers are prioritising premium smartphones that deliver higher margins over cheaper devices, hindering markets that depend on more affordable products.”

Distributor impact

And it’s not just the big vendors having to mitigate the current chipset crisis, but also the distributors.

Eurostar Global is one of those that has been impacted, but this has so far been minimal, says the company’s head of commercial and vendor management Steve Hankey.

“At present I would say the impact to Eurostar has been minimal so far. Some high-profile product launches are on constraint for sure, but so far nothing that has caused us too many headaches.”

Hankey says that Eurostar has been able to monitor the situation and cooperate with its partners to ensure minimal disruption.

“We’ve had visibility of this for some time now, but Eurostar has multiple routes of supply, and so by working closely with all of our partners we have been able to negate some of the supply constraints experienced by others.

“All of our direct vendor partners have worked with us closely in this situation. They made us aware of the situation several weeks ago and by working closely with their supply chain and logistics teams, we are in pretty good shape stock wise.”

He adds that Eurostar Global continues to carefully monitor the situation carefully.

Another distributor, New Way International, says there has been no noticeable impact on its business, but Exertis is monitoring the situation – as confirmed in a statement made last month by its mobile commercial director Paul Jacobs.

“Like other businesses, we are seeing issues with chipset shortages, and managing our way through this with vendors and customers to reduce the impact.”

Bounceback?

Thankfully for smartphone manufacturers, the shortages aren’t expected to be too long term, with analysts hopeful that the market can bounce back next year.

In its report, CCS Insight said it expected numbers to be far higher by next year, with sales projected to hit 1.97 billion in 2022.

“We’re in a position where the supply chain is working out the kinks that the pandemic brought about last year,” says Lam. “Eventually the shortages will be resolved and this could lead to a bumper year in 2022.”

But for 2021 at least, the mobile industry and other sectors beyond are bracing themselves for a challenging year.

Samsung and Oppo have confirmed they are among vendors affected by the global chipset supply crisis, which stems from the closure of factories and excess demand for home tech products during the pandemic.

A statement from Samsung said: “The current volatility of the semiconductor market is being felt across the entire technology industry and beyond.

“At Samsung, we are making our best efforts to mitigate the impact and will continue to work diligently with our partners to overcome supply challenges.”

A spokesperson at Oppo said: “The industry as a whole is facing a stretched supply chain, which requires the concerted efforts of the whole industry to overcome.

“Oppo has always adopted a proactive procurement strategy for core components, allowing it to guarantee product delivery to consumers.”

Distributors, too, have noticed the pinch. “Like other businesses, we are seeing issues with chipset shortages and managing our way through this with vendors and customers to reduce the impact,” said Exertis mobile commercial director Paul Jacobs.

The global chipset supply crisis is impacting some of the biggest smartphone vendors, with semiconductor shortages also impacting on other consumer electronics products such as TVs, gaming consoles and even car manufacturers.

Closures

The supply chain for chipsets made in China and the US was initially hit by the closure of factories.

This delayed the launch of Apple’s iPhone 12 series by two months last year.

Demand for more tech products fuelled by people working from home has aggravated the problem, despite production being back to normal now.

However, another distributor, New Way International, said there has been no issues so far.

IDC smartphone semiconductors, connectivity research director Philip Solis has accused some vendors as being too cautious when ordering stock of chipsets.

“A lot of the problem around the mobile phone space has to do with phone OEMs being overly cautious and ordering extra inventory so that they do not get caught short, and that is actually causing more tightness in the market. Chip fabrications are very close to 100 per cent utilisation.”