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IFX - Infineon Technologies AG News Story

€35.6 -0.3  -0.8%

Last Trade - 09/04/21

Sector
Technology
Size
Large Cap
Market Cap £40.18bn
Enterprise Value £43.36bn
Revenue £8.05bn
Position in Universe 34th / 1045

ANALYSIS-Carmakers wake up to new pecking order as chip crunch intensifies

Fri 19th February, 2021 7:00am
* Auto makers shunted to the back of queue for chips
    * VW finger-pointing fails to impress chipmakers
    * Car industry is a marginal buyer, reliant on older
technology
    * Long lead times mean supply squeeze won't ease before
mid-year

    By Douglas Busvine and Christoph Steitz
    BERLIN, Feb 19 (Reuters) - The semiconductor crunch that has
battered the auto sector leaves carmakers with a stark choice:
pay up, stock up or risk getting stuck on the sidelines as
chipmakers focus on more lucrative business elsewhere.
    Car manufacturers including Volkswagen  VOWG_p.DE , Ford
 F.N  and General Motors  GM.N  have cut output as the chip
market was swept clean by makers of consumer electronics such as
smartphones - the chip industry's preferred customers because
they buy more advanced, higher-margin chips. urn:newsml:reuters.com:*:nL8N2K25PY
    The semiconductor shortage - over $800 worth of silicon is
packed into a modern electric vehicle - has exposed the
disconnect between an auto industry spoilt by decades of
just-in-time deliveries and an electronics industry supply chain
it can no longer bend to its will.
    "The car sector has been used to the fact that the whole
supply chain is centred around cars," said McKinsey partner
Ondrej Burkacky. "What has been overlooked is that semiconductor
makers actually do have an alternative."
    Automakers are responding to the shortage by lobbying
governments to subsidize the construction of more chip-making
capacity.  urn:newsml:reuters.com:*:nL1N2KO03Q
    In Germany, Volkswagen has pointed the finger at suppliers,
saying it gave them timely warning last April - when much global
car production was idled due to the coronavirus pandemic - that
it expected demand to recover strongly in the second half of the
year.  urn:newsml:reuters.com:*:nL8N2KL35G
    That complaint by the world's No.2 volume carmaker cuts
little ice with chipmakers, who say the auto industry is both
quick to cancel orders in a slump and to demand investment in
new production in a recovery.
    "Last year we had to furlough staff and bear the cost of
carrying idle capacity," said a source at one European
semiconductor maker, who spoke on condition of anonymity.
    "If the carmakers are asking us to invest in new capacity,
can they please tell us who will pay for that idle capacity in
the next downturn?"
    
    LOW-TECH CUSTOMER
    The auto industry spends around $40 billion a year on chips
- about a tenth of the global market. By comparison, Apple
 AAPL.O  spends more on chips just to make its iPhones, Mirabaud
tech analyst Neil Campling reckons.
    Moreover, the chips used in cars tend to be basic products
such as micro controllers made under contract at older foundries
- hardly the leading-edge production technology in which
chipmakers would be willing to invest.
    "The suppliers are saying: 'If we continue to produce this
stuff there is nowhere else for it to go. Sony  6758.T  isn't
going to use it for a Playstation 5 or Apple for its next
iPhone'," said Asif Anwar at Strategy Analytics.
    Chipmakers were surprised by the panicked reaction of the
German car industry, which persuaded Economy Minister Peter
Altmaier to write a letter in January to his counterpart in
Taiwan to ask its semiconductor makers to supply more chips.
    No extra supplies were forthcoming, with one German industry
source joking that the Americans stood a better chance of
getting more chips from Taiwan because they could at least park
an aircraft carrier off the coast - referring to the ability of
the United States to project power in Asia.  urn:newsml:reuters.com:*:nL1N2JZ05K
    Closer to home, a source at another European chipmaker
expressed disbelief at the poor understanding at one carmaker of
how it operates.
    "We got a call from one auto maker that was desperate for
supply. They said: Why don't you run a night shift to increase
production?" this person said.
    "What they didn't understand is that we have been running a
night shift since the beginning."
    
    NO QUICK FIX
    While Infineon  IFXGn.DE , the leading supplier of chips to
the global auto industry, and Robert Bosch  ROBG.UL , the top
'Tier 1' parts supplier, both plan to commission new chip plants
this year, there is little chance of supply shortages easing
soon.
    Specialist chipmakers like Infineon outsource some
production of automotive chips to contract manufacturers led by
Taiwan Semiconductor Manufacturing Co Ltd (TSMC)  2330.TW , but
the Asian foundries are currently prioritising high-end
electronics makers as they come up against capacity constraints.
    Over the longer term, the relationship between chip makers
and the car industry will become closer as electric vehicles are
more widely adopted and features such as assisted and autonomous
driving develop, requiring more advanced chips.
    But, in the short term, there is no quick fix for the lack
of chip supply: IHS Markit estimates that the time it takes to
deliver a microcontroller has doubled to 26 weeks and shortages
will only bottom out in March.  urn:newsml:reuters.com:*:nL1N2KM1Y0
    That puts the production of 1 million light vehicles at risk
in the first quarter, says IHS Markit. European chip industry
executives and analysts agree that supply will not catch up with
demand until later in the year.
    Chip shortages are having a "snowball effect" as auto makers
idle some capacity to prioritize building profitable models,
said Anwar at Strategy Analytics, who forecasts a drop in car
production in Europe and North America of 5%-10% in 2021.
    The head of Franco-Italian chipmaker STMicroelectronics
 STM.PA , Jean-Marc Chery, forecasts capacity constraints will
affect carmakers until mid-year.
    "Up to the end of the second quarter, the industry will have
to manage at the lean inventory level," Chery told a recent
Goldman Sachs conference.

 (Douglas Busvine from Berlin and Christoph Steitz from
Frankfurt; Additional reporting by Mathieu Rosemain and Gilles
Gillaume in Paris
Editing by Susan Fenton)
 ((douglas.busvine@tr.com; +49 30 220 133 562;))
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