Tuesday, January 18

Chip Crisis Will Last Until 2022, Toyota Supplier Warns


Japan’s Rohm Co. says vital semiconductors for automobiles and industrial machinery are likely to remain in short supply for at least the next year, adding to ominous warnings about further fallout from the global chip crisis.

The Kyoto-based chipmaker, whose clients include Toyota Motor Corp., Ford Motor Co. and Honda Motor Co., has been hampered by severe shortages of key materials as well as full production lines, the director said. executive Isao Matsumoto. The company began strengthening its capacity last September and plans to spend another 70 billion yen ($ 636 million) in the current fiscal year, but the full contribution of such investments will not be seen immediately because production machinery is taking longer. to arrive, he said. additional.

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“All of our production facilities have been operating at full capacity since September last year, but customer orders are overwhelming,” Matsumoto said in an interview this week. “I don’t think we can meet the full backlog of orders next year.”

He joins his peers like Infineon Technologies AG in warning that supply chain struggles are likely to persist for much longer than anticipated. Chip delivery times have already exceeded 20 weeks as the Covid-19 delta variant complicates efforts to resume normal operations from Japan to Southeast Asia.

Shortages of materials and components, compounded by stuck trains, ships and planes, have forced global automakers from Toyota to Volkswagen AG to cut or suspend production in recent weeks. The Japanese auto giant said last week it would temporarily halt production at 14 plants.

Rohm shares rose as much as 0.8% in Tokyo on Friday, even as the Topix fell 0.8%. Founded more than 60 years ago, Rohm has become an integral part of the automotive supply chain as automakers add more electronics and semiconductors to vehicles. The Japanese automaker’s automotive solutions include devices used for power management, air conditioning, lighting, and entertainment.

The most severe bottleneck is the lack of materials like those required to make lead frames: the metal structure inside a semiconductor unit that communicates signals with the outside of the package.

“Offers to raise prices will no longer work because our suppliers simply don’t have a unit of stock on hand,” Matsumoto said. “Even for those of us who booked, the rate of arrival at our site did not meet our expectations.”

Scarcity can benefit the bottom line.

“Rohm’s operating profit margin may be expanded as its planned capacity expansion could bode well for sales and profit growth, as well as overseas market share gains amid impending shortages. chipset, “Bloomberg Intelligence Masahiro Wakasugi and Ian Ma wrote in a research note this month.

Still, some analysts warn that a sudden drop in demand could follow, as beefed-up production lines begin to contribute to capacity and customers finish securing sufficient inventories.

“The current crisis is due to a lack of production from suppliers and manufacturers trying to buy more components than they need due to concerns,” said Kazunori Ito, Morningstar’s head of equity research. “Both should disappear in 2023 or so.”

The current supply shortage means that Rohm has had to suspend a multi-year plan outlined above to outsource a portion of its chip production process to foundries abroad. The deal, especially for chips that require cutting edge technology, was intended to serve as part of its business continuity plans given the increasing frequency of natural disasters in Japan.

“Our plan to increase the number of chips that we ask others to make on our behalf has not changed, but these foundries do not have that capacity at the moment, and next year also seems very tight,” Matsumoto said. “Maybe we can resume it from one year to the next, albeit gradually.”

This year, Rohm received two sets of government subsidies to strengthen its production in Japan and Malaysia. But to further support semiconductor manufacturers and their subsidiaries, Matsumoto said his home country’s government may offer more benefits, including tax incentives and lowering the cost of renewables, given growing demand from customers for a carbon neutral production process.

“The amount of renewable energy that we should use in Japan is a big challenge, as we consume a lot of electricity and the cost of that energy here is very expensive,” he said. “That could become a problem for us when it comes to strengthening our domestic production capacity, and relocating these production lines outside of Japan could become an unavoidable option that we need to think about.”

© 2021 Bloomberg


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