Global chip shortages will continue and consumers will have to pay for it, an analyst at International Data Corporation said.
Sasirin Pamai | Istock | Getty Images
The global chip shortage is far from over and the war in Ukraine continues to strain supplies of the critical parts needed, one analyst told CNBC on Tuesday.
“Semiconductor supplies will not increase immediately. There’s a lot of raw materials, gases, that were needed to make these semiconductors,” Vinay Gupta, International Data Corporation’s Asia-Pacific director of research, told CNBC’s “Squawk Box Asia.” “
Citing supply chain challenges due to Russia’s war in Ukraine, Gupta said the two countries capture much of the market share, with Russia and Ukraine the biggest exporters of krypton, a gas used in chipmaking.
Neon is also critical to the chip-making process and is used for lasers known as lithography, where machines carve patterns onto tiny pieces of silicon made by Samsung, Intel and TSMC.
More than half the world’s neon is produced by a handful of companies in Ukraine, according to Peter Hanbury, a semiconductor analyst at research firm Bain & Co.
Semiconductors are used in everything from cell phones and computers to cars and household appliances.
Supply chain disruptions and rising costs will also mean that “the average selling price of devices will rise and infrastructure providers will then pass that on to customers,” Gupta added.
‘Signs of Recession’ on Consumer Spending
Rising inflation and expectations of more monetary tightening are already causing a “consumer-led slowdown,” Gupta said.
“IT spending, especially consumer IT spending, is showing signs of recession.”
Although spending on enterprise IT – which includes software services, cloud and IT services – is still holding up, inflation has been driving the business to “protect their IT budgets right now.”
Coupled with rising interest rates around the world, that slowdown “will bite,” he added.
“But hopes are that this will be a shallow slowdown as the government and central banks try to balance rising inflation and … interest rates,” Gupta added.
Statements by two officials last week indicated the Federal Reserve is on track for another sharp rate hike in July and possibly September, even if it slows the economy.
In June, the Fed approved a 75 basis point, or 0.75 percentage point, increase in its benchmark lending rate, the biggest such move since 1994.
Slow hiring, less costs in Asia
On Tuesday, Bloomberg reported on Apple’s plans to slow hiring and growth spending next year to deal with a possible downturn. A “similar trend” will be seen across Asia’s tech sector, Gupta said.
“I believe that will be a trend that we will start to see.” [in] in late 2022 or early 2023 if the situation does not improve.”
“If we talk about IT services in Asia, most of them are experiencing pressure on margins due to rising wage costs and skills gaps … in the market.”
In India, for example, margins for tech giants are “a little bit lower, despite more hiring in the first quarter,” Gupta added. But that may not last long.
“Many businesses have turned to new digital technologies due to the pandemic, allowing their employees to work from home, so [there were] many new digital transformation projects,” he said.
“But we will start to see some pressure on margins because obviously corporate earnings will take a hit if we see the whole scenario play out the way you see it right now.”