Chip shortage hits European manufacturing industry amid recovery

2021-05-12 04:35:39 GMT2021-05-12 12:35:39(Beijing Time) Xinhua English

FRANKFURT, May 12 (Xinhua) -- A global shortage of semiconductor chips is taking its toll on the European manufacturing industry, hindering the sector's recovery and pushing Europe to rethink its supply chain strategy.

Automakers are among the worst hit, as chips are now vital for everything from a car's battery system to in-car computer features. Several car makers in Europe have recently curtailed or halted production after failing to secure crucial components.

German automaker Daimler in late April sent employees on short-time work and temporarily halted production at two plants in Bremen and Rastatt due to chip delivery bottlenecks. Audi later also partially stopped production at its Neckarsulm site.

"The situation around semiconductor supply is complex and volatile," an Audi spokesperson told Xinhua earlier in an interview following the decision, adding that the company is following closely the development and "reassessing the situation on a weekly basis."

The chip shortage has become a major challenge for Europe's manufacturing sector, which is witnessing a robust recovery in the first quarter (Q1) this year thanks to strong global demand.

The latest data showed that the German mechanical and engineering sector saw orders surging by 29 percent in real terms year-on-year in March.

"At the same time, however, production hindrances increased due to bottlenecks in important supplies. This is a spanner in the works of an otherwise pleasing recovery," said Ralph Wiechers, chief economist of the German Mechanical Engineering Industry Association.

German research institute Ifo also found in a recent survey that 45 percent of manufacturing companies in Germany recorded bottlenecks in April, "by far the highest value since January 1991."

Shortages of intermediate products, including semiconductors, became a "serious problem" for Germany's manufacturing industry, the institute said last week, warning that it "could jeopardize the recovery of the manufacturing sector."

Electronics manufacturers, for which semiconductors are vital, are also closely watching how things unfold. Finnish network equipment manufacturer Nokia said that it will "continue to monitor overall market developments including visibility for semiconductor availability," while listing procurement of chips as one risk factor in its Q1 financial report.

Song Sun-jae, an analyst from Hana Daetoo Securities in South Korea, predicted that the chip shortage could last longer than expected, and maybe into the coming year, German newspaper Handelsblatt reported.

The reasons behind the current chip shortage felt in the European industries are complex. For one thing, Asian and U.S. chip makers make up a big chunk of the global supply, whereas Europe produces about 10 percent.

European Commissioner for Internal Market Thierry Breton told Bloomberg in a recent interview that Europe's share of semiconductor manufacturing has dropped over the years because the region has been "too naive, too open."

The global pandemic and a recent fire at a chip factory in Japan as well as severe weather in parts of the United States in the early months this year all add to the current supply bottlenecks.

In March, as part of its digital initiative for the years to come, the European Commission, the executive arm of the European Union, announced its goal to double semiconductor production capacity to at least 20 percent of world market share by 2030.

This is important for tackling the current bottlenecks, and semiconductors will also be needed for 5G and 6G, autonomous driving, Industry 4.0, the Green Deal, as well as future applications of decentralized data processing, Breton told German newspaper Frankfurter Allgemeine Zeitung in late April.

The commission welcomes a joint declaration by 22 EU Member States that "aims to enhance cooperation among Member States and increase investment along the semiconductor value chain on equipment and materials, design, and advanced manufacturing and packaging, where feasible through the Recovery and Resilience Funds," according to a statement on the commission's website on April 26.

The joint declaration will "pave the way to the launch of an industrial alliance," Breton was quoted as saying.

"A collective approach can help us leverage our existing strengths and embrace new opportunities as advanced processor chips play an ever more important role for Europe's industrial strategy and digital sovereignty," he said, noting that Europe will remain open.

The bloc has yet to unveil details of the plan. Over the past two weeks, Breton has been busy exchanging views with European policymakers and representatives from the world's major chip makers.

To meet the current and future semiconductor industry demand, Europe will drastically increase production capacity "both on its own and through selected partnerships," Breton tweeted. Enditem