BriefCASE: Another Semiconductor Shortage May Be Coming

Key companies in the automotive and semiconductor industries
have expressed concerns about a potential semiconductor shortage in
the second half of 2025 or 2026. According to S&P Global
Mobility, a shortage is likely, but only in mature nodes of 40
nanometers and above.

One reason is that a significant number of investments are being
funneled into the development and expansion of fabrication
facilities capable of producing advanced nodes, such as 5 nm or 3
nm, and even smaller process technologies. This shift is driven by
the demand for higher performance and energy-efficient chips,
particularly in sectors such as consumer electronics, datacenters
and high-performance computing.

This has led to a relative underinvestment in mature process
nodes, which are still crucial for industries including automotive,
industrial and some consumer electronics. These mature nodes are
essential for producing chips that do not require the high
performance of advanced nodes but are critical for their
reliability and cost-effectiveness.

Risk of chip shortage in 2025

S&P Global Mobility's electric/electronics and semiconductor
team has warned of the persistent structural deficit in chip
fabrication capacity for mature nodes. In 2023, the semiconductor
industry faced a potential overcapacity, largely due to reduced
demand from sectors such as mobile phones and consumer electronics.
However, there is a significant likelihood that supply constraints
could resurface if global chip demand in these sectors rebounds.
This scenario underscores the ongoing vulnerability in the supply
chain for mature process nodes.

The global semiconductor industry continues to grapple with a
deficit in chip fabrication capacity, particularly for mature
process nodes ranging from 90 nm to 180 nm. This shortage was
somewhat obscured during 2022 and 2023 due to a slowdown in demand.
However, the risk of constraints on automotive chip supply is
expected to resurface by 2025. Several factors contribute to this
looming challenge.

Firstly, automotive chip inventory levels are projected to be
low by the end of 2024. This coincides with a surge in new
battery-electric vehicle launches in Europe in 2025, driven by
stringent new emission legislation. Additionally, demand from other
industries is rebounding, as evidenced by recent market data. This
resurgence in demand could exacerbate the supply constraints for
automotive chips

Analog chips could become one of the bottlenecks for
light-vehicle production. Analog chips typically use mature chip
processes of 90 nm to 300 nm. There are technical and commercial
reasons why these will continue to be produced at mature process
nodes and not at leading-edge process nodes. The demand for analog
chips is increasing for mobile phones and, considering the growth
in vehicle segments and propulsion mix, the average number of
analog chips per car is expected to increase 23% in 2026 compared
with 2022.

Moreover, some car chip manufacturers and tier 1 suppliers are
exerting significant pressure on chip vendors to reduce prices,
with some even advocating for a return to pre-COVID-19 pricing
levels. This price pressure could further complicate the supply
landscape. If other industries, which often offer better margins,
ramp up their orders, automotive clients may once again find
themselves at the back of the queue, reminiscent of the situation
in 2020.

Mainland China's strategic gamble on mature process
nodes

While much of the industry's attention has been on advanced
nodes used for cutting-edge applications, mainland China has
strategically focused on expanding its capacity and capabilities in
mature process nodes. These mature nodes, typically 40 nm and
above, remain essential for a wide array of automotive
applications, including microcontrollers, power management and
connectivity chips.

In the event of a significant semiconductor shortage,
particularly in the automotive sector, mainland China's investments
could serve as an economic and geopolitical tool. By controlling a
substantial portion of the supply for mature nodes, mainland China
could influence global supply chains, compelling automakers and
other industries to seek partnerships or concessions. This leverage
could extend beyond mere economic advantage, allowing mainland
China to negotiate favorable terms in trade deals or exert pressure
on geopolitical rivals.

In summary, while the industry has gained valuable insights from
pandemic-induced shortages and implemented more robust forecasting
and process improvements, some level of disruption is anticipated.
The projected shortage in late 2025 may not reach the severity or
duration of the previous crisis, but a supply-demand mismatch is
likely, especially if there are global demand fluctuations.

Authored by: Hrishikesh S, Research Analyst, Supply
Chain & Technology, S&P Global Mobility

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