Chip shortage

Global chip shortage hits Brazilian automotive industry, telco's watch nervously.

Billions of dollars have been lost throughout the world due to the global semiconductor shortage that began in the first quarter of 2021 and that has halted production lines mainly in the automotive industry but also in smartphones, home appliances and other industrial goods manufacturing chains.

A number of events have contributed to the shortage including: a rise in demand, lack of new capacity, geopolitical tensions and limited stock. But it is mainly the imbalances in supply and demand that makes this shortage crisis difficult to resolve in the short-term.

In Brazil, 44% of electronic device producers have been adversely affected, which has particularly hit the automotive industry. Volkswagen temporarily closed two of its production plants and recently announced it will halt production for 30 days, starting on 1 July 2021, in plants based in the states of Sao Paulo and Paraná. Other car manufacturers including Chevrolet, Fiat and Honda also suffered disruptions in their manufacturing plants due to semiconductor shortages.

An investment director at a TMT consultancy in Brazil was concerned, “The scarcity of semiconductors in Brazil is alarming and it could get worse in the coming months before it improves at a global level, hopefully by the end of the year. It would not be surprising to see production stops in the telecommunications, computing and domestic devices industries, similar to what we have recently seen in the automotive industry.” A TMT analyst at a Brazilian investment bank agreed with the timing, “Brazil will continue to struggle throughout 2021 but I can see the situation improving by early 2022.”

“The scarcity of semiconductors in Brazil is alarming and it could get worse in the coming months.”

Investment director, TMT consultancy, Brazil

To make matters worse, the government closed down Ceitec, the only state-owned semiconductor chip producer in South America, claiming it was not profitable. In compensation, the Ministry of Science, Technology and Innovation announced that it will create a body to oversee the research and development of the semiconductor industry in Brazil.

“The government argued that the chips Ceitec produced were not sophisticated, but you have to start somewhere.”

TMT analyst, investment bank, Brazil

Industry commentators were disappointed, “Brazil should include the production of semiconductors as an important arm of a future industrial policy. The announcement to create the new body to design a strategy on research and development of semiconductors is a right move in this direction. But it is just an initiative at the moment.” The TMT analyst agreed, “The government has a very simplistic and short-term strategy, they had hoped that Ceitec would become a cash cow for the country, it didn’t and so they closed it without thinking of the other tangible benefits. The government argued that the chips Ceitec produced were not sophisticated, but you have to start somewhere.”

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