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Samsung warns of severe chip shrinkage, probably skipping Galaxy Note 21 this year

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Samsung Electronics Co warned that it is grappling with the consequences of a “serious imbalance” in semiconductors globally, becoming the largest tech giant to voice concerns about chip shortages that extend beyond the auto industry.

Samsung, one of the world’s largest chip and consumer electronics manufacturers, expects the crisis to pose a problem for its business next quarter, Co-CEO Koh Dong-jin said during an annual shareholders meeting in Seoul. The company is also considering skipping the introduction of a new Galaxy Note, one of its best-selling models, this year, although Koh said it was aimed at streamlining its lineup.

Industry giants from Continental AG to Renesas Electronics Corp. and Innolux Corp. In recent weeks they warned of longer-than-anticipated deficits thanks to unprecedented Covid-era demand for everything from cars to game consoles and gadgets. mobiles. Volkswagen AG said this week that it has lost production of about 100,000 cars worldwide. In North America, silicon shortages and extreme weather have combined to stall further production at Toyota Motor Corp. and Honda Motor Co. Fear is the crisis, which first hit automakers hard, may now disrupt the much larger electronics industry.

“There is a serious imbalance in the supply and demand for chips in the IT sector globally,” said Koh, who oversees the company’s mobile and IT divisions. “Despite the challenging environment, our business leaders are meeting with partners abroad to resolve these issues. It’s hard to say that the shortage problem has been 100% solved. “

Samsung, the world’s largest smartphone maker, is working with overseas partners to resolve the imbalance and avoid potential business setbacks, its co-chief executive said. Its shares fell 0.6% in Seoul on Wednesday, while Asian chip suppliers and manufacturers, including Taiwan Semiconductor Manufacturing Co. and SK Hynix Inc., also fell.

Chipmakers like Samsung and TSMC are at the forefront of a global effort to fill a shortfall in the supply of semiconductors, the building blocks of a host of consumer devices. The shortfall has shut down auto plants around the world and now threatens the supply of other products. While the Korean company is the largest manufacturer of made-to-order silicon after TSMC, it relies on third-party vendors and manufacturers for certain parts, such as power management and radio chips.

Greater-than-anticipated demand for Covid-era smartphones has also expanded Qualcomm Inc.’s Snapdragon chip stores, the benchmark processors for mobile devices. Qualcomm designs the chips, known as application processors, but relies on Samsung and TSMC to produce them, and the Taiwanese chipmaker’s capacity has suffered.

“The supply shortage of Qualcomm AP chips produced by TSMC is affecting everyone except Apple,” said MS Hwang, an analyst at Samsung Securities. “PCs will soon be affected due to a shortage of display controller ICs, and the profitability of televisions will be affected by rising prices for LCD panels.”

To make matters worse, Samsung’s own production took a hit last month. Its fabulous in Austin, Texas, which makes chips for both domestic and foreign consumption, was sidelined in February by statewide power outages and has not resumed full production. The resulting shortfall in the production of Qualcomm 5G radio frequency chips could reduce global smartphone production by 5% in the second quarter, estimates research firm Trendforce. But the outage is likely to hit Samsung’s mid-tier phones and laptops more than its high-end models or server chips, said Greg Roh, senior vice president at HMC Securities.

“If Samsung is talking publicly about future products, you know the silicon crisis is serious,” said Avi Greengart, analyst and founder of consultancy Techsponential.

Automakers were the first to be hit by the chip crisis, in part due to poor inventory planning, and $ 61 billion in sales are expected to be lost this year alone. Honda Motor Co. said Wednesday it will temporarily suspend some production next week at most plants in the United States and Canada, underscoring the deepening crisis.

Some analysts say the shortage could be solved for the most part in the coming months. But the concern is that supply shortages in certain segments, such as more mature semiconductors, where it takes time to build capacity, could eventually strangle the overall consumer electronics industry and drive prices up if it persists. Semiconductors are now at the top of official agendas from Washington to Brussels.

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At the same time, China’s insatiable appetite for French fries, fueled in part by its rapid recovery from the pandemic, and a build-up of stocks by local businesses are fueling demand. Sales for the country’s chip industry rose 18% to 891.1 billion yuan ($ 137 billion) in 2020, the president of the China Semiconductor Industry Association, Zhou Zixue, said at a conference in Shanghai on Monday. Wednesday.

“The shortage of CI will be a problem that will frustrate the supply chain for the next six months,” said Charles Shum, an analyst at Bloomberg Intelligence.

On Tuesday, Hon Hai Precision Industry Co, the assembler of most of the world’s iPhones, joined a chorus of industry executives who emphasized that it will take time to resolve the imbalances in supply and demand.

“We see a shortage, we feel it. But the impact for most of our customers is not that great, ”Hon Hai Chairman Young Liu told reporters in Taipei. “For certain customers who have better orders than expected, there is some impact. For the top customers who plan well, where there’s not a big increase in orders, those customers are fine. “

Koh said Samsung may decide not to introduce its Galaxy Note during the second half of 2021, breaking a streak of years-long annual releases for the marquee line. The Note series contributed about 5% of Samsung’s smartphone shipments in the past two years, IDC estimates, but it represents a more significant portion of revenue because it is one of the most expensive in the line.

“The note series is positioned as a high-end model in our business portfolio,” he said. “It could be a burden to present two flagship models in one year, so it could be difficult to launch the Note in 2H. The timing of the Note model launch can be changed, but we are looking to launch a Note model next year. “

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