Chip Demand Rises Beyond Expectations
By Meghana Pakala, ETF Product Analyst, VanEck
Technology has evolved at a rapid pace over the past twenty years, and with those advances, the importance of components that go into our electronics has also grown. Semiconductors are an integral part of nearly every device people use today, from home appliances such as televisions and air purifiers to larger machines such as trains and automobiles. The recent chip shortage has caused many companies, particularly automakers, to pause production, and order delays have reached record numbers as the shortage worsens.
We believe the extraordinary demand for semiconductors over the past few months has been largely due to the effects of the pandemic. The work-from-home era has spurred sales of laptops, webcams, and other office gear, all of which come with customized chips. As consumers bought more personal electronics, companies ordered more chips to keep up with demand. However, the second half of 2020 saw car sales rebound much faster than automakers had expected. As a result, many orders placed at the end of the year were turned down as chipmakers were already stretched thin supplying computer and smartphone companies.
Global Semiconductor Consumption, 2003 - 2019
Source: PwC; SIA; IC Insights, Gartner; CCID Consulting, Statista.
The pandemic has pushed chip demand beyond levels projected before 2020, and the technology is only heading up. As more people work from home for the indefinite future and the proliferation of 5G networks drives heavy data consumption, we expect the market demand for even more powerful chips will continue to expand. Although the shortage is causing trouble in many industries, we believe the semiconductor field is seeing a burst of creativity, with innovative designs gaining traction and heralding an exciting, high-efficiency future for the industry.
MVIS US Listed Semiconductor 25 Index
Source: MV Index Solutions. Rebased to 1,000. Data as at 31 May 2021.
Meghana Pakala joined VanEck in 2018 and is an ETF Product Analyst focusing on the thematic equity and guided allocation product lines. Her responsibilities include product development and marketing strategy and implementation. Prior to joining VanEck, Meghana served as a Business Analyst at the London Stock Exchange Group. She received a B.S. in Marketing and Data Science from New York University.
The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.