News

In this article

A store window in Dublin, Ireland, with iPhones and Samsung Galaxy handsets on display.
Artur Widak | NurPhoto | NurPhoto via Getty Images

A global shortage of computer chips has impacted everything from automobiles to video game consoles. And smartphones are looking like they’re next on the list.

Semiconductors have been in short supply this year, due to a number of reasons including factory closures resulting from the Covid-19 pandemic and heightened demand for consumer electronics.

Automakers have been especially impacted by the shortage, with companies like General Motors and Ford reducing or even halting production of certain vehicles.

Video game consoles are also being affected, with gamers struggling to get their hands on the new Microsoft Xbox Series X and Sony PlayStation 5 systems.

Smartphones have so far been mostly shielded from the fallout, thanks to manufacturers like Apple and Samsung stockpiling critical components.

“The automotive industry doesn’t run at the same cadence as the smartphone business,” Ben Wood, chief analyst at CCS Insight, told CNBC. “They saw the problems more slowly than the smartphone guys.”

Carmakers rely on bigger, older chips while phone makers are using the latest processors, Wood said. Smartphones are also sold in far higher volumes than vehicles, making them a preferred customer of suppliers.

Meanwhile, “smartphone companies didn’t drop their demand for chips as the automotive sector did when they expected a drop in demand for cars” at the start of the pandemic, Syed Alam, Accenture’s global semiconductor lead, told CNBC.

“In fact, smartphone companies benefited from the extra capacity left behind by automotive businesses, which led the automotive sector to experience a chip shortage when demand for cars rose faster than they anticipated,” he added.

However, mobile manufacturers are now starting to feel the impact of the global chip shortage.

“Now that the automotive sector and others are catching up and starting to reclaim the capacity they had given up, there is a fierce competition for semiconductor supply,” Alam added. “This has created supply pressure for smartphone chips.”

Demand for smartphones waned in 2020 as the coronavirus pandemic raged, with sales declining 12.5% according to Gartner. However, that demand has been quickly recovering this year, as several countries lift their Covid lockdown restrictions. Gartner says that global smartphone sales grew 26% in the first quarter.

Apple warning

On Tuesday, Apple CEO Tim Cook warned that silicon supply constraints will affect sales of the iPhone as well as other products like the iPad.

The shortages aren’t in high-powered processors that Apple manufactures for its devices but chips for everyday functions like powering mobile displays and decoding audio, Cook said.

“Although Apple is one of the ‘big dogs’ that gets top priority from chipmakers, it is vulnerable to silicon shortages like everyone else,” Glenn O’Donnell, VP and research director at analyst firm Forrester, told CNBC.

“While everyone focuses in on CPUs (the high end of chips), every device (including an iPhone) contains a whole lot more and without these supporting chips, the phone is nearly useless.”

Still, Apple “has proved remarkably resilient so far throughout the pandemic,” CCS Insight’s Wood said. “that’s testament to its tremendous focus on supply chain.”

It is smaller manufacturers like China’s Lenovo and TCL, and Finland’s HMD Global, that are likely struggling with supply, Wood added.

HMD, which is launching some new Nokia smartphones this summer, warned the semiconductor shortage could prove challenging for smaller device makers.

“We see there is definitely overall tightness” in the supply chain, Florian Seiche, HMD’s CEO, told CNBC. “We might see a certain imbalance across the market,” he said, adding that demand for low-end models is quite high.

Like Apple, Samsung benefits from its size and bargaining power. However, analysts say the company is not out of the woods yet.

“Samsung seems the one under greater impact” in the first half of 2021, Dale Gai, semiconductor analyst at Counterpoint Research, told CNBC.

The South Korean electronics giant was hit with a month-long shutdown of its semiconductor fabrication plant in Austin, Texas, earlier this year after a snowstorm led to power outages. Meanwhile, Samsung’s Vietnam factories suspended operations after detecting cases of coronavirus.

In March, the company said there was a serious imbalance in supply and demand of chips in the IT sector, and that it may skip the launch of its next Galaxy Note handset.

On Thursday, Samsung said it saw a 54% jump in profit in the second quarter as chip prices soared. The company forecast a recovery in the mobile market to pre-pandemic levels, but warned a shortage of non-memory chips posed a risk to its forecasts.

Higher prices

In terms of the overall impact on smartphones, Gai said he expected the shortage to shave 10% off of device makers’ production forecasts.

“I don’t believe the shortage will have a severe impact, but it will have an impact,” said Forrester’s O’Donnell.

So what does this all mean for you, the consumer?

“The likely outcome here is higher prices for phones and deeper shortages for certain models,” according to O’Donnell.

“In Apple’s case, you might be able to get the high end iPhone 12, but not the lower-end iPhone XS,” he said. “Other smartphone makers like Samsung, LG, and the Chinese makes like Xiaomi and Huawei will all feel the pinch.”

– CNBC’s Sam Shead and Kif Leswing contributed to this report.