The Looming Crisis in Manufacturing

Silicon chips make the world go ‘round.

The pandemic upended everything from the Summer Olympics to the ability to buy certain staples from grocery store shelves.

While many industries have either bounced back or adjusted, one area that’s still feeling the effects — and likely will for many months to come — is the electronics sector.

In short, manufacturers across many, many different industries are having trouble getting enough semiconductors for their products.

These computer chips are at the heart of everything you can think of, and the ongoing shortage is something everyone will eventually feel one way or another.

The device you’re reading this on right now has semiconductors in it. Same for your television, your smart home devices, maybe even your car.

In many ways, these semiconductors are the lifeblood of the modern economy and did more than their share of heavy lifting throughout the pandemic.

In the earliest days of the pandemic, when people were staying home and looking for ways to entertain themselves, the Nintendo (OTC: NTDOY) Switch game console was sold out everywhere.

When it became clear that working from home was going to become the new normal for many people, state-of-the-art desktops and laptops started flying off the shelves.

When it became profitable to mine cryptocurrency again, graphics processing units (GPUs) disappeared within seconds of getting restocked.

So hardware sales was another area where the tech industry cleaned up over the course of 2020.

But as that was happening, the factories that create these semiconductors were struggling to keep up. While the increased demand wasn’t the whole story, it was a big part of it.

A perfect storm of work stoppages related to the pandemic — along with higher demand and new logistics challenges — worked together to create a supply squeeze that will take months to correct.

Likewise, the Trump administration’s trade war with China contributed as well.

Back in December, the U.S. Department of Commerce put a Chinese company called Semiconductor Manufacturing International Corporation on a trade blacklist.

That means that the company can’t source U.S.-made parts to make semiconductors that are prominent in most smartphones and gadgets. That company just happens to be one of the largest of its kind in all of Asia.

And it doesn’t stop at phones, gaming consoles, and personal computers.

Cars are becoming increasingly computerized. This means companies like Ford (NYSE: F) and General Motors (NYSE: GM) rely on these semiconductors just as much as any computer hardware maker.

In fact, General Motors just announced earlier this week that one of its assembly plants in Missouri, which has been idle since March 15, would see extended downtime due to the shortage.

Other big car manufacturers like Honda (NYSE: HMC), Volkswagen (OTC: VWAGY), and Toyota (NYSE: TM) have also warned that their production numbers, and thus revenues, would suffer from this shortage in the immediate future.

President Biden has ordered a review of supply chains for critical items in the U.S. Things like that take time, so results won’t come any time soon. At the very least, this could put a dent in initiatives like the president’s plans to get more battery-powered cars on American roads over the next few years.

If nothing else, this whole situation is a perfect example of how trouble in one sector ripples out and affects other areas of the economy.

The semiconductor manufacturing sector will eventually recover, but some analysts believe that won’t happen until next year.

Because semiconductors are so central to the modern economy, this shortage will slow down recovery.

It’s because of reasons like that, that you want to make sure your portfolio is positioned to thrive no matter what.

Nick and Gerardo will be discussing the semiconductor shortage in the upcoming episode of Bizarro World, due out on Monday.

Check out the podcast here to see how you can listen to it on your favorite media platform.

Keep your eyes open,

Ryan Stancil
Editor, Daily Profit Cycle

Ryan Stancil is an editor and regular contributor to Daily Profit Cycle. He’s been active in the financial publishing industry for more than half a decade, offering insights and commentary on technology and geopolitics to help readers make sense of the constantly changing landscape and how it affects their investments. His readers appreciate his "tell it as it is" writing style, where he always offers a fresh new perspective on what's happening in the market and leaves nothing unsaid.