The global chip shortage is one of a wide range of shortages that have occurred due to supply chain imbalances caused by the pandemic. While some have viewed these shortages as transitory, others are less confident that they will let up soon. In this segment of Backstage Pass, recorded on Nov. 17, Fool contributors Rachel Warren and Travis Hoium discuss.
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Rachel Warren: I tend to think that it's not these kinds of shortages. It's not transitory. I think it's going to take a while, but I do think that these signals that we're getting from the auto industry specifically are very hopeful. I think that should be very encouraging to businesses, consumers and investors alike.
But I also agree with Connor's point that some of these companies, that consumers are willing to pay a premium if it's something they really need. In some cases, it will be interesting to see if these high prices, even once the shortage slows down, will deflate a bit or if it's something that's here to stay.
I do think it's interesting to note that I did a little research into this. What are some of the solutions that could potentially alleviate the chip shortage? I found this interesting study by a consulting firm called Bain and Company. What was interesting was the report that found that most solutions to the chip shortage have extraordinarily long lead times.
The standard time to manufacture one chip is about three months. For example, we're dealing with shortages for a variety of reasons. There's a supply demand imbalance. There has been in some cases, these factory fires, there's been a whole lot of catalysts.
But let's say you had a company that decided, "OK, we're going to redesign the part. We're going to switch suppliers." That move alone would take, according to this report, 18 to 24 months.
If they were then going to move to a different factory, that could take alone nine to 12 months. All of these processes that are built into manufacturing these chips that essentially the world runs on now, it's like the solution is almost more complicated than the problem. I think it'll be a while.
Travis Hoium: Well, to add to that, since we are six to nine months into this, we may be starting to see the solutions that you're talking about. That if you're GM, let's say, and you know that there's a chip shortage and it's going to last for a while, and you can reduce your chip consumption by 20% by taking, we've seen stories about them taking out components in the infotainment system and different pieces. You're right, that doesn't happen overnight. But we should start to see the impact of that now-ish.
Rachel Warren: That would be the hope.
Travis Hoium: That would be the hope, yes, we're not going to have new fabs coming online until 2023 or 2024. The supply is not going to increase for a while, but maybe we see a little bit of an impact on the demand side.
That's the argument anyways. It'll take a while to figure this out. But eventually, those car lots are going to be full again and this whole thing is going to be over.
Rachel Warren: [laughs] That would be so great. That's an excellent point and I think it's interesting to see that from a consumer perspective, we see all the headlines and then you look and you realize the process is very complicated. Hopefully we are seeing the beginning of the end of these types of shortages.
I think if I had to pick one stock in this area that I think is an interesting buy right now, I would go with Texas Instruments (TXN -0.43%). The company recently reported its earnings for the third quarter.
Revenue was up 22% year-over-year. Cash flow from operations was $8.5 billion for the trailing 12 months. One of the things I like about this stock in particular is it is a dividend stock with a really robust history of increasing its payout.
The company said that they returned $4.2 billion in the past 12-months alone through dividends and stock repurchases. That currently yields about 2.4%. Texas Instruments is an interesting company for sure.