Global chip shortage persists amid inflation, rising rates and war: IDC

The global chip shortage will continue and consumers will have to pay for it, said an analyst at the International Data Corporation.

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The global chip shortage is not yet over and the war in Ukraine continues to strain the supply of important parts needed, an analyst told CNBC on Tuesday.

“The supply of semiconductors is not going to increase immediately. There are a lot of raw materials, gases, that were needed to produce these semiconductors,” said Vinay Gupta, director of Asia-Pacific research. from International Data Corporation, to CNBC’s “Squawk Box Asia.” “

Citing supply chain challenges due to Russia’s war in Ukraine, Gupta said the two countries capture much of the market share, with Russia and Ukraine being the largest exporters of krypton, a gas used in the production of chips.

Neon is also essential for the chip-making process and is used for lasers, known as lithography, where machines carve patterns onto tiny pieces of silicon made by Samsung, Intel and TSMC.

More than half of the world’s neon is produced by a handful of companies in Ukraine, according to Peter Hanbury, a semiconductor analyst at research firm Bain & Co.

Semiconductors are used in everything from cell phones and computers to cars and household appliances.

Supply chain disruptions and rising costs will also mean that “the average selling price of devices will increase and infrastructure providers will then pass this on to customers,” Gupta added.

“Signs of recession” for consumer spending

Rising inflation and expectations of further monetary tightening are already causing a “consumer-driven slowdown,” Gupta said.

“IT spending, particularly consumer IT spending, is showing signs of a recession.”

As spending on enterprise IT – which includes software services, cloud and IT services – holds steady, inflation has pushed businesses to “protect their IT budgets now”.

Coupled with rising interest rates around the world, this slowdown “is going to bite,” he added.

“But hopefully it will be a bit of a slowdown as the government and central banks try to balance rising inflation and…interest rates,” Gupta added.

Statements from two officials last week indicated that the Federal Reserve is on track for another sharp interest rate hike in July and possibly September as well, even if that slows the economy.

In June, the Fed approved a 75 basis point, or 0.75 percentage point, increase in its benchmark borrowing rate, the largest such move since 1994.

Slow recruitment, less spending in Asia

Tuesday, Bloomberg announced Apple’s plans to slow hiring and growth spending next year to deal with a possible slowdown. A “similar trend” will be seen in the Asian tech sector, Gupta said.

“I believe that would be a trend that we will start to see [in] end of 2022 or beginning of 2023 if the situation does not improve.”

“If we talk about IT services in Asia, most of them are feeling pressure on their margins due to rising labor costs and skills gaps… in the market.”

In India, for example, tech giants’ margins are “a bit lower, despite more hiring in the first quarter,” Gupta added. But that might not last long.

“Many companies have turned to new digital technologies because of the pandemic, allowing their employees to work from home, so [there were] a lot of new digital transformation projects,” he said.

“But we will start to see pressure on margins because obviously corporate earnings will take a hit, if we see the whole scenario play out the way you see it right now.”

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