"As things stand today, we're seeing chips that used to cost $5 go all the way up to $85, which is proving to be a real problem," said John Sicard, CEO at Canadian-based Kinaxis, a supply chain management firm.
A month since the Biden administration decided to impose curbs on the export of chip-making technology to China, the global semiconductor supply chain is set to worsen. Escalating prices coupled with a more severe supply crunch, experts say, is the unwelcome fallout of the US Federal government’s decision to restrict exports of chip-making equipment to China.
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"As things stand today, we're seeing chips that used to cost $5 go all the way up to $85, which is proving to be a real problem," said John Sicard, CEO at Canadian-based Kinaxis, a supply chain management firm. "Even if customers are willing to pay, manufacturers simply can’t make enough for everyone," Sicard added, "In my opinion, the semiconductor supply crunch is here to stay for another three to five years."
In early October, the United States introduced an unprecedented and controversial set of rules on American suppliers of chip-making equipment. The regulations mandate that all US-based companies cease supply of chip-making equipment to Chinese chip-makers unless they obtain a license in advance. These rules mostly apply to relatively advanced chips, including NVIDIA’s A100/H100 and Intel’s GPU.
Companies that have seen exports impacted include top American names like KLA, Lam Research, and Applied Materials, which have halted shipments to Chinese-owned factories that produce advanced chips.
Closer home, the impact of a continued semiconductor shortfall will impact Indian auto majors. Maruti Suzuki, which recorded sales of 1.92 lakh cars in the festive season this year, stares at an uncertain outlook so far as semiconductor availability is concerned.
"We are not able to provide a clear date on when it (semiconductor situation) will become normal because the visibility of semiconductor component availability is not there for the long term," said Shashank Srivastava, senior executive director of marketing and sales at Maruti Suzuki, a week ago, in a chat with CNBC-TV18.
Srivastava pointed out that previous years’ tailwinds in auto sales were on account of semiconductor availability while pending bookings have built up today on account of production constraints.
The lack of visibility on normalcy pertaining to semiconductor availability has been further impacted by the US government's decisions pertaining to chip-making exports to China. This is largely because China relies on technology imports like chip-makers to optimize manufacturing.
"Developing a local ecosystem in China will take time especially since it depends on the rest of the world for technology,” said economist Eswar Prasad, in a chat with CNBC-TV18, "These import restrictions will impact the country’s growth rates."