Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Demand for semiconductors has been surging over the last two
years, with demand rising across all electronic finished goods
markets. In September, the IHS Markit Global Electronics Purchasing
Managers' Index™ (PMI™) for new orders was at 58.0, signaling rapid
expansion in new business with the index for future activity
remaining highly expansionary in all three regions: Asia, Europe,
and North America. Overall demand for semiconductors and electronic
components demand continues to advance at a brisk pace.
This increased demand, compounded by manufacturing backlogs and
supply chain disruptions, has caused severe shortages felt across
many industries that require chips, such as automakers and
smartphone manufacturers as well as all electronic equipment
manufacturers. The latest IHS Markit Global Electronics PMI survey
shows evidence of a further lengthening in average input lead times
during September, as signaled by the Suppliers' Delivery Times
Index, which was at 29.3, far below the neutral 50.0 mark.
With many questions coming from clients about the availability
of semiconductors, as well as deep concerns around supply chain
bottlenecks, we wanted to explore what risks could further impact
the supply of these integral chips.
To better uncover future risks, we turned our eyes to Taiwan, a
major hub for semiconductor production. Taiwan fared quite well
through the pandemic and even with Covid-19 restrictions, it has
felt little adverse effect on exports and the manufacturing sector.
Indeed, the Taiwan economy has been very resilient, recording
positive GDP growth in 2020 and showing buoyant economic expansion
in 2021.
As a major provider of electronics and other technology
components, Taiwan has benefited from surging sales for related
products as the pandemic has boosted demand for teleconferencing
and activities related to people working from home, distance
schooling, and online streaming and entertainment. Exports of
semiconductors account for 90% of their electronic exports or 35%
of total exports. But all is not so rosy.
In addition to large manufacturing operations for
semiconductors, much of the world's trade in semiconductors passes
through the Taiwan Strait (in addition to many other essential
products). While the manufacturing sector remains strong, and
demand is high, there are considerable risks along their supply
routes. Any trade disruption in the region would further exacerbate
supply chain tensions globally.
When we look at the stability of the region, the situation
remains volatile even though reports suggest both possible
increases in tensions and a continuation of the current status quo.
The combination of politically related events, such as the increase
in the nationalist discourse on both sides, the hasty US withdrawal
from Afghanistan or the perception in China (mainland) that it is
under threat, have polarized opinions. Our political and economic
risk assessments acknowledge the worsening of geopolitical
fundamentals across the region. One important potential risk
scenario which was quantified is for a short but intense
confrontation that could elevate the challenges to an already
precarious supply route.
In this crisis scenario, there would be a short-term disruption
in economic, financial, and trade flows. Given the region's
strategic importance, any trade disruption in the area would
immediately percolate throughout the world's regions, in some cases
with permanent effects including long-term changes in international
trade and growth patterns. Any significant disruption to
semiconductors production or transportation logistics to key
markets would create significant shockwaves to various industries,
such as electronics and auto manufacturing, aggravating the
pressures we are already experiencing today.
The global semiconductors industry is already facing significant
backlogs in its new orders pipeline that have caused disruption to
global supply chains. These production shortages are expected to
continue into 2022. A scenario that results in further disruption
or delays to Taiwan's semiconductors production in the near-term
would therefore create further shockwaves to the global
manufacturing supply chain.
Contact us to learn more
about our crisis scenario for the region and what it means for
supply chain resiliency.
Posted 08 November 2021 by Elisabeth WaelbroeckRocha, VP & Chief International Economist, Research Advisory Specialty Solutions, S&P Global Market Intelligence and
Rajiv Biswas, Executive Director and Asia-Pacific Chief Economist