Singapore-based electronics manufacturer Flex (FLEX +2.32%) anticipates that the current semiconductor shortage will extend at least halfway into next year and potentially into 2023, according to a report published by The Financial Times on Monday. Chip manufacturers are already making big investments to open new factories, but the plants will take years to build, and it looks like supplies of semiconductors will continue to be constrained in the near term.
Flex is the world's third-largest contract electronics manufacturer and provides components for companies including Ford (F +0.33%) and HP. Its comments provide sobering insight into the supply chain issue. The company's executives believe the situation could improve if consumer spending shifts from electronics to services, but that might be unlikely.
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More products and services depend on chips than ever before, and an explosion of demand as coronavirus-related pressures have eased in some countries is creating supply chain issues.
Tensions between the U.S. and China have also complicated matters. The world's two largest economies are jockeying for leadership in design and production, and each country views chip supply as central to its national security and long-term economic development.
With the potential for a new super cycle in mobile hardware upgrades and emerging tech trends including 5G, augmented reality, and the Internet of Things, demand in the consumer electronics space appears likely to remain high.
Surging chip demand has led foundries to prioritize more-profitable orders, and this has pressured availability for automotive companies, which typically require less-advanced and less-profitable chips. Consulting firm AlixPartners estimated in March that the chip shortage would result in the automotive industry losing out on $110 billion in potential sales this year.
