You are now leaving the PIMCO website.

Skip to Main Content

Global Chip Shortage: The Winners and Losers

We expect global tech spending to grow, driving demand for semiconductor components and leading to above-trend growth for the sector.

Computer chips, or semiconductors, power everything from cars to consumer electronics, such as PCs, gaming consoles and smartphones. The recent shortage in this valuable resource has significant implications for consumer prices, company profits, employment, inflation, and even national security.

While we expect the chip bottleneck to ease somewhat in the second half of the year, particularly for car companies, stronger demand for semiconductors is set to stay. Over the longer term, we expect a semiconductor supercycle with continued demand from traditional sources, such as consumer electronics, supplemented by increasing demand from newer sources, such as chips for artificial intelligence (AI) applications.

Although we see significant opportunities in the semiconductor sector, we are watching a variety of risks as we assess which companies are likely to be winners and losers in the anticipated supercycle.

What is driving the global chip shortage?

Two key factors are driving the shortage: a COVID-19-driven disruption to supply and demand dynamics and ongoing geopolitical tensions between the U.S. and China.

Demand for consumer electronics surged during the pandemic as millions of people were forced to work and study from home. Global PC shipments grew by 10.7% in 4Q 2020 and 4.8% for the full year, with 275 million units shipped in 2020, the highest growth for the past 10 years. At the same time, demand for automotive chips declined as orders for new cars fell in 1H 2020. Semiconductor foundries shifted capacity to consumer products, which tend to be more sophisticated and offer better margins. This has led to a shortage of capacity for industrial chip production. When auto sector demand rebounded in the second half of 2020, car companies couldn’t get enough.

Most Chinese chip manufacturers rely on U.S. software and machinery to fabricate semiconductors. Following the imposition of U.S. government restrictions on technology exports to China in 2019, Chinese companies started stockpiling chip inventory, contributing to the shortage. Chinese imports of semiconductors rose 14.6% year-on-year in 2020 to $350 billion (U.S.), or 2.4% of GDP, while its technology and R&D investment grew from 1.2% of GDP in 2019 to 1.5% of GDP in 2020.

In addition, geopolitical tensions have affected the appetite of global tech companies to invest. That’s added to the shortage because only a handful of advanced foundries can support the surge in demand for semiconductors. Over 83% of global foundry revenue is generated by companies headquartered in Taiwan and South Korea, and the concentration is even worse for cutting-edge chips. The “just-in-time” model works best in a stable supply and demand environment. Now, Chinese and even global manufacturers may have to consider a “just-in-case” model given supply uncertainty, partly related to access to U.S. technology.

What does this mean for inflation?

As a result of the global chip shortage, we have observed inflationary pressure in information technology hardware prices, which could be a long-term phenomenon and create a higher barrier to entry for the semiconductor sector given increasing capital intensity. Chinese makers of home appliances have started announcing notable price increases for the first time in decades. This also partly reflects insufficient supply of raw materials, such as substrates, or wafers. The macroeconomic implication is that supply shortages could boost prices and shrink retail sales, and margins, for semiconductor-intensive devices.

We expect car companies will face higher chip costs but this cost rise is unlikely to lead to significant global CPI growth since a 10% increase in auto-related chip prices would lead to an increase of around 0.2% in auto production costs.

Investment opportunities and key risks

The pandemic has advanced the digitalization of businesses – in this cyclical recovery, the focus is not on infrastructure; it’s chips, not bricks, that matter. As we noted in a recent blog, “Green Light to a Greener Economy ”, semiconductors are a key enabler of the economic recovery, placing the sector in a good position to benefit from trends such as power efficiency, 5G and increased electric vehicle production.

We expect Taiwan, South Korea and China will continue to lead in semiconductor production capital expenditures (capex), accounting for over 70% of global capex in 2021. Semiconductor exports accounted for 6% of South Korea’s GDP and 20% of Taiwan’s GDP in 2020. Taiwan and South Korea are likely to continue to be leaders in this technology over the next three to five years, supporting growth and their currencies. Other winners from the global chip shortage are likely to be semiconductor equipment makers and market-leading companies that have better bargaining power to secure chips.

We expect greater challenges for smaller car manufacturers, consumer electronics companies and industrial companies which are unable to secure the required supply of chips. Chip designers could also struggle due to the inability to secure manufacturing capacity and the likelihood of price increases from foundries.

Overall, we believe that global tech spending is set to grow, driving demand for semiconductors and leading to above-trend growth for the sector. While we believe the sector is rich with opportunity, we would also suggest investors keep an eye on some key risks. Containment of the pandemic could accelerate the recovery of global economic activity, including demand for automotive chips, which could prolong near-term chip shortage. An increase in U.S.–China tensions could exacerbate supply issues; President Joe Biden’s policy stance towards China on technology will be critical to the global semiconductor supply chain. China’s path to semiconductor self-sufficiency is a medium- to long-term risk, which could change the competitive landscape profoundly. In addition, any shortage of materials and components could have significant ramifications for the sector and other sectors that rely on chips.

For details on our outlook for the global economy in 2021 and the investment implications, please read our Cyclical Outlook, “Dealing With an Inflation Head Fake .”

Featured Participants


All investments contain risk and may lose value.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the author but not necessarily those of PIMCO, and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world. ©2023, PIMCO.

Tell us a little about you to help us personalize the site to your needs.

Terms and Conditions

Please read and acknowledge the following terms and conditions:
{{!-- Populated by JSON --}}
Select Your Location


Europe, Middle East & Africa