Global Chip Shortage Not Over, Warns IDC

Global chip shortage is not over, as IDC analyst points to Russia’s war in Ukraine impacting raw materials and the global supply chain

The global chip shortage is not over by any means, and IT spending, especially in the consumer sector, is showing signs of a recession.

This is according to a senior analyst at IDC, who was interviewed by CNBC’s “Squawk Box Asia” on Tuesday this week.

The world has been struggling to contend with chip shortages for a while now, that has badly impacted certain industries such as car manufacturing. This, coupled with huge supply chain disruption caused by the Coronavirus pandemic and Russia’s illegal war in Ukraine, has added to the problems.

Chip shortage

Speaking to CNBC, the International Data Corporation’s Asia-Pacific research director Vinay Gupta, warned that the global chip shortage is not over yet, and the war in Ukraine continues to put a strain on supplies of important parts needed.

“The semiconductor supply is not going to increase immediately. There are a lot of raw materials, gases, which were required for production of those semiconductors,” Gupta was quoted as saying.

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

Ukraine is also known as the world’s leading supplier of Neon, critical for the chipmaking process and is used for lasers, known as lithography, where machines carve patterns onto tiny pieces of silicon

Indeed, half the world’s supply of Neon is said to come from Ukraine, and in March Ukraine’s two leading suppliers of neon (Ingas and Cryoin) halted their operations amid Russia’s unprovoked aggression in the country.

The gas, a biproduct of steel manufacturing in Russia, is reportedly purified in Ukraine before being exported.

IT spending

Supply chain disruptions and rising costs will also mean “the average selling price of the devices is going to rise and the infrastructure vendors would be then passing it down to the customers,” IDC’s Gupta added.

And Gupta also added that rising inflation and expectations of more monetary tightening are already causing a “consumer-led slowdown.”

“IT spending, especially consumer IT spending, is showing signs of recession,” Gupta told CNBC.

While spending on enterprise IT – which includes software services, cloud and IT services – are still holding out, inflation has driven businesses to “protect their IT budgets right now.”

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

“But the hopes are that this will be a shallow slowdown, because the government and central banks are trying to balance the rising inflation and … interest rates,” Gupta added.

Economy worries

The warning from IDC’s Gupta comes amid signs that tech companies are starting to tighten their fiscal belts, amid concern at the global economy.

Earlier this week Bloomberg reported that Apple is slowing hiring and spending in 2023 for certain teams.

Meanwhile Google CEO Sundar Pichai last week in an email to staff warned that Alphabet plans to slow down hiring and consolidate investments through 2023

Microsoft recently confirmed it had begun cutting less than 1 percent of jobs as part of a structural adjustment, after warning the management the Windows and Office divisions in May to adopt a more conservative approach to hiring new people.

Facebook parent Meta Platforms earlier this month scaled back its target for adding software engineers this year from 10,000 to around 6,000 to 7,000.

Tesla meanwhile is already restructuring its operations and is in the process of axing 10,000 jobs, after Elon Musk announced he had a “super bad feeling” about the economy and planned to cut headcount by 10 percent and “pause all hiring worldwide.”