From asset finance to AFK: Impacts of the global semiconductor shortage beyond the auto industry and UK government responses

The effects of the global semiconductor shortage on different manufacturers is starting to impact on everyone’s life whether they’re aware or not. In an increasingly politicised climate for this essential technology component, Laura Harper, looks at how the Consumer Electronics sector has fared in securing supplies and recent UK government funding decisions to support growth and innovation in the UK semiconductor manufacturing sector.

The global shortage in semiconductor chips has impacted the auto industry hardest, with factory shutdowns featuring regularly in the news. Yet, as vehicle manufacture only accounts for around 10% of the £250bn semiconductor sales annually, has the worldwide semi-conductor shortage had a similar impact on sales and growth in the Consumer Electronics industry and more specifically the booming gaming industry, boosted by the stay at home pandemic?

In June, the Society of Motor Manufacturers and Traders reported car sales as 17% lower than June 2019, with Chief Executive Mike Hawes calling it the ‘long Covid’ of vehicle supply challenges. The average delay for UK car manufacturers now stretches from 3 to 6 months, with vans being most heavily delayed.

Transport equipment manufacturers report a 16.5% fall between May and June of this year with factory shutdowns featuring increasingly in the news. Jaguar Land Rover halted production at its two primary factories in Halewood and Castle Bromwich from April into mid-May and in Turkey, Ford’s deprioritisation of chip supply to a Turkish plant, which assembles the Ford Transit for sale in the EU market, meant production completely shut down in early June.

Companies with large delivery and transport operations integral to their core business will feel it the most – an obvious area for additional costs being unplanned maintenance of older stock. For example, where existing fleet orders have been delayed, this could lead to companies incurring unplanned for costs in order to keep existing fleet on the road on top of the cost of replacing vehicles.

Fewer vehicles being produced due to the need for semiconductor chips in new model cars also means companies outside auto manufacturing, such as the vehicle and equipment asset finance market, are starting to bear the consequences. For individuals who lease their car, demand outstripping supply means delays in return and exchange for new vehicles. However, they will want to check their current car’s value with auto trader websites before making any decision due to the increase in the price of second hand cars, as fleet owners bid at auction to purchase nearly new when new is not available.

For the Consumer Electronics manufacturing sector news has been markedly different. UKIE, the UK trade association for the UK's games and interactive entertainment industry, reported in March, that the games hardware had seen a record year for sales, with revenues propelled to 60.8% up on 2020, reaching £2.26bn. Despite Samsung remaining ebullient with a 54% rise in operating profits in Q2 due to being in a position to raise its prices as demand increased there is still concern that chip shortages will delay new smartphone releases. Apple has also warned that the chip shortage may restrict supplies of iPads and iPhones during autumn. Despite this Apple, Acer, and Asus sales are still growing faster than most other manufacturers due to their pre-existing widespread availability, and despite the growth of PC sales slowed globally overall during Q2, and both IDC and Gartner found sales remain “well above” pre-pandemic levels,.

With semiconductor chip production and supply not expected to improve in the auto industry until into 2023, games companies and the Consumer Electronics sector have fared much better with their forecasting, keeping semiconductor supplies more closely aligned to consumer demand.

However, as Moody’s Analytics points out, protectionist steps are now being taken by foreign governments to produce their own semiconductor chips as a matter of national security. The question is whether the UK government will follow suit? According to data compiled by Bloomberg, the UK government has sold semiconductor chip companies valued at approximately $42 billion to foreign buyers since May 2010. A change in approach may now be on the horizon. In early July, having initially waived the deal through, the Prime Minister has ordered a review by the National Security Advisor into the purchase of Newport Wafer Fab Ltd by a Chinese manufacturer and a consortium is reportedly gathering with UK companies gearing up to put in an alternative bid for the Welsh semiconductor manufacturer.

In welcome news to UK’s semiconductor industry in June the government was reported to have ramped up investment in semiconductor chip development in order to build local supply chains with a DEIS grant of £73mn to 10 projects. In addition, the South West of England and Wales continue to develop as a hub for innovation in semiconductor development and manufacturing. The award of £43.7m by the UK Research and Innovation’s flagship ‘Strength in Places’ to a Cardiff University-led consortium CSConnected to help it advance "the world's first compound semiconductor cluster" and bring together the expertise of twelve entities across government, industry and academia. Two new university labs, Swansea University’s  Centre for Integrative Semiconductor Manufacturing (CISM) and Cardiff University’s Translational Research Hub (TRH) will focus on different areas, from multiple semiconductor platforms for healthcare and power electronic components needed to drive a net zero future to advanced communications and sensing technologies based on integrated compound semiconductors.

Investment in future UK semiconductor manufacturing capabilities by UK consortiums and government innovation funding awards won’t be in time to help out Father Christmas and curtail anticipated disappointment for parents of gamers, and those hoping waiting lists will subside in time for a shiny new PS5 or XBox to appear under their tree, who may be concerned to know console shortages are anticipated to afflict Christmas.

And for anyone hoping to escape reality with a visit to the metaverse, in a statement released last month it was revealed the global semiconductor shortage is impacting on the continued expansion of MMORPGs – Massively Multiplayer Online Role Playing Games – which rely on server capacity and speed. Unable to upgrade new EU servers and with an influx of new players overloading their existing servers, Final Fantasy XIV Online’s producer and director apologised in an open letter to gamers for the grief caused by the server congestion, announcing they will be bringing forward the launch of a new auto log-out feature to kick idle players out of the game.

So while the good news is that the government is investing in innovation and is more alive to supporting UK investment in the sector, if the value of your leased car has gone up or you just got kicked out of an online game for being Away From your Keyboard for a bit too long, it may well be the down to the global squeeze on semiconductor chip supplies.

If you need legal advice on future proofing your supply chains, bringing outsourced processes or services in-house or dealing with the consequences of the shortage on your own ability to meet contractual obligations Irwin Mitchell’s Commercial team can help.

With semiconductor chip production and supply not expected to improve in the auto industry until into 2023, games companies and the Consumer Electronics sector have fared much better with their forecasting, keeping semiconductor supplies more closely aligned to consumer demand.”