High demand from electronics makers sparks computer chip shortage

A global shortage of computer chips is likely to persist for another 18 months, according to an Australasian manufacturing business.

The dearth of semiconductor computer chips had been ongoing since 2020 when COVID-19 emerged.

Global manufacturers effectively shut down as the world went into lockdown only for them to reopen to unprecedented demand from electronics makers and vehicle companies.

Last year, the local division of the electronics manufacturer GPC - which makes devices for New Zealand businesses in the mining, heavy construction, agritech and fleet management industries - was among those feeling the pinch but expected supply would improve by early 2022.

GPC Electronics NZ Limited general manager Robert Wallis said that had not happened.

"What we are seeing is lead times further extending and [for] some components the lead times are going up by years. That's not to say they take years to make them but it's a point of allocation and priorities for who gets what."

He said supply would continue to remain tight until mid-2023.

GPC, which had factories in New Zealand, Australia and China, as well as a dedicated procurement team in China, had been able to mitigate the worst of the shortages by using the group's purchasing power to secure more chips and printed circuit boards.

But carrying more inventory came at a cost, Wallis said.

"What we'll find is that we will buy the materials and 90 percent of it will come in and maybe 10 percent it will be difficult to get. What it means is we are holding all that inventory we cannot complete."

The cost of freight was also rising, and Wallis said the company had no choice but to pass all the price increases onto its customers because it was a contract business operating on tight margins.

Wallis' main message for its customers was they needed to place orders much earlier to get them by a specified due date.

The global shortage of semi-conductors had been particularly severe for big vehicle manufacturers who rely on "logic" chips: these are essentially the brains of our electronics and modern motor vehicles increasingly rely on them.

Many of the big car companies cancelled their forward orders for chips in 2020 in anticipation of a sharp downturn in demand. But when that did not eventuate, they failed to reinstate their orders and found themselves at the back of the queue.

German carmaker Volkswagen said the chip crunch was partly why it sold two million fewer cars last year.

Toyota is the most recent victim, announcing last week it would reduce its domestic production target by as much as 20 percent for the June quarter because it could not get its hands on sufficient supplies of the critical component.

However, a company spokesperson said it would maintain its 8.5 million vehicle production targets for the year.