Chip shortage situation has eased by 25%: IESA

The ongoing pandemic-induced semiconductor supply shortage has improved and will continue to do so in the months to come, according to India Electronics & Semiconductor Association (IESA). Once the supply improves, sectors that are dependent on the electronic component will see a uniform improvement, it added.

“Overall, the supply gap has eased by as much as 25%. Waiting time, which was about 3 months earlier, has now come down to approximately a month”, said K Krishna Moorthy, CEO & president, IESA, while speaking to DH.

Nonetheless, it will take a couple of quarters for the supply to come back to pre-Covid levels, he said. The automobile sector has been the most affected industry due to the semiconductor shortage, followed by technology, communications, industrial goods and machinery, according to Rinaldo Pereira, a senior analyst at GlobalData, a London based research firm. The research points out that in the first quarter of FY22, 24 companies had a mention of semiconductor shortage in their earnings transcript, annual reports, quarterly reports and other filings whereas, it jumped to 40 companies in Q2. Companies with the most mentions include Sona BLW forgings, Eicher Motors, Tata Motors and Tejas Networks to name a few.

The global auto industry grappled with supply issues due to pandemic-driven manufacturing lockdowns and a shift in consumer demand. The world’s biggest semiconductor maker - Taiwan Semiconductor Manufacturing Company (TSMC) - warned the drought might extend to 2022.

Investment inflow

The global shortage has triggered investments into the sector and has resulted in about $44 million into Indian semiconductor startups after the nationwide lockdown was put in place, according to Crunchbase data. To understand the massive growth, sample this: in the 5 years prior to 2020, the sector had received just $7 million, i.e., a growth of six times.

As an impetus to the industry, the government too may very soon come out with a manufacturing policy and PLI scheme. “As far as semiconductor manufacturing is concerned, the Performance Linked Incentive (PLI) scheme will probably be announced as part of the overall new policy that the Government of India is going to come out with soon”, said Krishna Moorthy. He said that once it is out, heavy investments will follow as Indian behemoths like the Tata group have shown interest.

The global semiconductor market size is expected to grow from $340 billion in 2015 to $650 billion by 2025 at a compounded annual growth rate (CAGR) of 6.7%, revealed an estimate by India Invest - an investment promotion and facilitation agency. India’s semiconductor demand is currently valued at around $24 billion and is expected to reach $100 billion by 2025.

Headwinds

The new Omicron variant has concerned the industry players due to the fact that its impact remains uncertain. “Everybody is cautious and closely monitoring the developments. If the number of cases rises with subsequent partial shutdowns, then the situation would be very unpredictable”, said Krishna Moorthy.

Experts highlight that the manufacturing of semiconductors is a cash-guzzling affair and requires support at various levels from all stakeholders. “Its manufacturing requires a deep pocket, lot of government support and tax benefits for the production unit. So, as far as manufacturing is concerned, we are at ground zero and it’s a long way to go. However, fabless or designing part of it can be developed a lot faster”, said Hemant Mallapur, Co-founder & EVP - Engineering, Saankhya Labs, a homegrown fabless semiconductor company.

Data released by the Society of Indian Automobile Manufacturers (SIAM) revealed that total passenger vehicle sales plummeted by 19% in November year-on-year, a seven-year low, amid the time when the industry was hoping to make up for the lost ground in the festive season. The two-wheeler and three-wheeler segments too saw 11-year and 19-year lows, respectively.

Nevertheless, with increasing investment, government support and ever-increasing demand, one could say that all is not lost for the sector yet with the supply expected to ease out in future.