China Locks Down Important Manufacturing City, Worsening Global Computer Chip Shortage

Xi’an, China — an important hub for the global semiconductor industry — is enduring a lockdown amid rising COVID-19 rates, further stretching computer chip supplies in the West.

CNN Business reported that Chinese authorities have enacted “sweeping measures with an intensity and on a scale rarely seen since Wuhan, the pandemic’s original epicenter.”

Indeed, Samsung said on Wednesday:

Due to the ongoing COVID-19 situation, we have decided to temporarily adjust operations at our manufacturing facilities in Xi’an, China. This decision was made in accordance with our commitment to protecting the health and safety of our employees and partners, which remains our top priority. We will also take all necessary measures, including leveraging our global manufacturing network, to ensure that our customers are not affected.

Micron, another chipmaker, issued a similar statement:

The city’s closure has reduced Micron’s team member and contractor workforce at our Xi’an site, resulting in some impact to output levels of our DRAM assembly and test operations there. We are working with suppliers operating in this region that face similar challenges. We are also working with local government officials to identify solutions that will enable us to minimize impact of the situation and maintain operations at the site safely. 

We are tapping our global supply chain, including our subcontractor partners, to help service our customers for these DRAM products. We project that these efforts will allow us to meet most of our customer demand, however there may be some near-term delays as we activate our network. New or more stringent restrictions impacting our operations in Xi’an may be increasingly difficult to mitigate.

The semiconductor shortage is a key driver of inflation in the automotive industry as manufacturers are forced to slash production. Between November 2020 and November 2021, data from the Bureau of Labor Statistics show that the price of used vehicles has increased 31.4%, while the price of new vehicles has risen 11.1%.

In response to the crisis, Ford Motor Company and General Motors want to produce their own computer chips. The Wall Street Journal reported last month:

Ford on Thursday morning said it had entered into a strategic agreement with U.S.-based chip maker GlobalFoundries Inc. to develop chips, a pact that could eventually lead to joint production in the U.S. The two companies didn’t disclose terms or say how much they might invest in future production capacity.

Shortly after, GM President Mark Reuss said GM was also trying to forge deeper ties with chip makers, striking strategic partnerships that could lead it to co-develop semiconductors and potentially produce them jointly. The move is part of a strategy to reduce variation in the microprocessors it uses in vehicles, he said.

Tesla chief executive Elon Musk commented earlier this year that he has “never seen anything like” the current semiconductor shortage.

“Our biggest challenge is supply chain, especially microcontroller chips,” Musk said on Twitter. He then compared the company’s decision to “overorder” various products to the “toilet paper shortage” that occurred at the outbreak of COVID-19 in the United States.

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