Smartphones: Diwali won’t be dhamaka this year; chip shortage likely to impact festive launches of consumer electronics

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October 03, 2021 4:30 AM

In a report last month, IDC said the semiconductor industry will see normalisation and balance by the middle of 2022, with a potential for overcapacity in 2023 as larger scale capacity expansions begin to come online towards the end of 2022.

IDC reported that dedicated foundries have been allocated for the rest of the year, with capacity utilisation at nearly 100%.

The ongoing shortage of semiconductors and related electronic components, which has impacted India also, is likely to spoil the festival season for smartphone makers and consumer electronics players, as analysts anticipate fewer launches and an uptick in prices in the range of 5-8%.

Counterpoint Research has revised downwards its smartphone shipment numbers for 2021 calendar year to 6% at 1.4 billion units. It had earlier projected an annual growth of 9%. The smartphone industry was set for a strong rebound this year after Covid had hit the market hard in 2020.

“Smartphone vendors placed large component orders from the end of last year, and consumer demand coming from delayed replacement purchases buoyed the market in the first quarter. However, some smartphone OEMs and vendors are reporting they had only received 80% of their requested volumes on key components during Q2 2021, and the situation seems to be getting worse as we move through Q3 2021,” the market research firm said.

Some smartphone makers are now saying they are only receiving 70% of their requests, creating multiple problems. Counterpoint Research believes 90% of the industry is affected and this will impact the second half forecast for 2021.

In a report last month, IDC said the semiconductor industry will see normalisation and balance by the middle of 2022, with a potential for overcapacity in 2023 as larger scale capacity expansions begin to come online towards the end of 2022.

IDC reported that dedicated foundries have been allocated for the rest of the year, with capacity utilisation at nearly 100%. Front-end capacity remains tight but fabless suppliers are getting the production they need from their foundry partner. Front-end manufacturing is starting to meet demand in 3Q; however, larger issues and shortages will remain in back-end manufacturing and materials.

Counterpoint also acknowledged that semiconductor shortage is continuing and despite foundries running at full capacity for several quarters, the smartphone industry is being affected. Components that were once fully stored in warehouse are bottoming and new components are not coming as requested.

“In the case of application processors, one of the most crucial elements in smartphones, the shortage was triggered by low yield rates in newly established fab lines. With the situation seeming to persist it caused a chain reaction throughout the industry. Vendors like Qualcomm and Mediatek rely on these foundries and manufacturing problems result in fewer processors supplied, which, in turn, affects smartphone OEMs,” it added.

A top executive with a leading smartphone company said, “Demand is strong and it will persist in the festival season. What we expect are fewer launches and offers. Also since raw material and component prices have gone up by 1-4% and there is chip shortage, companies may raise the prices, albeit in the range of 5-8%.”

For instance, Reliance Jio has delayed its launch plans for the new smartphone owing to chip crisis, he said, adding another issue is container shortage and rising freight charges in China, which is also impacting margins.

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