Stacy Rasgon on How the Global Chip Crisis May Be Getting Even Worse

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:17)

And I'm Tracy Alloway.

Joe Weisenthal (0:19)

So Tracy, obviously all year, we've been talking about inflation and supply chain issues and shortages. But one of the first areas that we really started talking about was the, had to do with the disruptions in semiconductors.

Tracy Alloway (0:36)

Yeah, I think this was like our entry into global supply chain issues.

We started talking about semiconductors and this idea that there was a shortage of these chips that were needed for all sorts of things. And I think, if you are of a certain age or generation, you tend to think of semiconductors as something that goes into a computer. But of course, nowadays they show up in phones, in things like refrigerators and of course, cars as well. Just almost every major appliance now seems to have some sort of chip embedded in it.

Joe Weisenthal (1:10)

Right, and we did like a six episode series, I think earlier this year about chips.

But the chip story, even though we haven't talked about as much lately, it really hasn't gone away. And I think I just saw last week, there was a story about some chip manufacturer in Malaysia reducing production. They're pretty regular stories. You mentioned automobiles about car companies still not being able to get an adequate supply of chips and thus being forced to cut production. So the issues have not gone away by any stretch.

Tracy Alloway (1:43)

Yeah, I think Toyota made a massive downgrade to its expected production. But yeah, so this is something that I've been wondering about. So on the one hand, yes, we have some COVID outbreaks in Asia that have disrupted semiconductor factories or manufacturers, particularly in Malaysia where they manufacture, my understanding is they manufacture some components for semiconductors or something like that.

So okay, you have the Delta variant and that's not production to some extent. But on the other hand, you know, as you said, this issue has been going on for quite some time now, like more than a year.

And the big question is, why aren't we getting to a better place in terms of production? At this point, the semiconductor companies know that they need to boost production. They know there's lots of demand out there. So why isn't that happening?

Joe Weisenthal (2:36)

Well, hopefully we are going to get some answers today on the show, why it is that we're now in the middle of September, and we still don't have something resembling like a smooth semiconductor supply chain. We're going to be going back to our first guest that we had on the semiconductor series. I think he actually appeared twice already.

Last time was in March. We're going to be speaking with Stacy Rasgon. He's managing director and senior analyst at Bernstein covering US semiconductors.

He's going to hopefully answer all of our questions. So Stacy, welcome back to Odd Lots.

Stacy Rasgon (3:08)

Oh, it's great to be back. Thank you for having me again.

Joe Weisenthal (3:10)

So are we right? I mean, it appears not only are the issues persisting, like in some measures, things seem to be getting worse.

Stacy Rasgon (3:18)

Yeah, and so we had hoped that by now, things would be getting back to some semblance of normalcy. And you're right, they're really not. It's actually getting worse, not better in many parts of the market. So we still are seeing production shortfalls. We're still seeing shortages.

We've been hoping, obviously, that COVID would be on the decline at this point. It is not, it is still causing disruptions. You mentioned Malaysia and some other areas.

So yeah, we're not back to normal yet. We're still seeing some of the same issues that we've been seeing for quite a while.

Tracy Alloway (3:49)

So what exactly is driving those disruptions then? So you mentioned some COVID outbreaks in parts of Asia, but it seems to be, we might see some factory closures, some isolated factory closures, but it seems like the issues are sort of more endemic than just an outbreak at a particular factory.

Stacy Rasgon (4:11)

Yes, it may be helpful to go back a little bit and talk about what caused these shortages in the first place. And I talked about this, I think, I can't remember, maybe it was the second time that I was on.

But if we look at the automotive sector first, that's where we're seeing some of the biggest issues. So we've seen the biggest issues the whole time. And you're right, we're still actually seeing production cuts. You mentioned Toyota. We also had recently GM and Ford and a bunch of others and it's been going. So they're still seeing shortages. You have to remember the issue there was initial supply chain whipsaws. In the beginning of COVID, factories got shut down.