Toyota supplier: chip crisis will last until 2022

According to foreign media reports, (Rohm), a Japanese semiconductor company, said that by 2022, important semiconductors for automobiles and industrial machinery may still be in short supply, and the global chip crisis will further intensify.

Roma is a chip manufacturing company headquartered in Kyoto, Japan. Its customers include Toyota Motor Company, Ford Motor Company and Honda Motor Company. Isao Matsumoto, CEO of Roma, said its development was hampered by a severe shortage of key materials and production lines. Roma began to expand capacity in September 2020 and plans to invest another 70 billion yen ($636 million) in the current fiscal year, but these investments will not see immediate benefits because of the long delivery cycle of production equipment, he added.

"all our production facilities have been running at full capacity since September 2020, but there are so many orders from customers that I don't think we can complete all the backlogs next year," Matsumoto said in an interview this week.

Semiconductor companies such as Roma and Infineon Technology have reminded carmakers that the supply chain crisis will last longer than expected. The spread of the novel coronavirus epidemic caused by a variant of Delta has made it more difficult for Japan to resume normal operations in Southeast Asia, and the chip delivery cycle has exceeded 20 weeks.

In recent weeks, severe shortages of materials and parts and traffic jams such as trains, ships and planes have forced Toyota, Volkswagen and other car companies to cut or suspend production. Toyota said last week that it would temporarily close 14 factories.

On Aug. 27, Roma's Topix index fell 0.8%, but its shares rose 0.8% in Tokyo. Roma, which has been founded for more than 60 years, has become an integral part of the automotive supply chain as automakers purchase more electronics and semiconductors.

Roma's automotive-related products include power management, air conditioning, lighting and infotainment equipment. The most serious bottleneck facing the company is the lack of key materials, such as those needed to make lead frames. The lead frame is a metal structure inside the semiconductor unit that is used to connect to the wires outside the package.

Matsumoto said: "We have raised the price of materials from suppliers, but this method is no longer useful because suppliers do not have enough inventory, even if we ordered in advance, the delivery speed did not meet our expectations."

Masahiro Wakasugi and Ian Ma, analysts at Bloomberg (Bloomberg Intelligence), wrote in a research note this month: "Roma's profit margins are likely to improve because its planned capacity expansion and increasing overseas market share in the looming global chip crisis may bode well for the company's sales and profit growth." However, some analysts say final demand could fall suddenly as new production lines start to contribute capacity and carmakers have enough inventory.

Kazunori Ito, head of (Morningstar) research at Morningstar Securities, said: "the current chip crunch is mainly due to insufficient production by suppliers, followed by car manufacturers hoarding parts for fear of stopping production. These two situations will disappear around 2023. "

The current supply shortages have forced Roma to shelve a previously drawn up multi-year plan to outsource part of its chip production process to overseas contract factories. In view of the increasing frequency of natural disasters in Japan, this plan is conducive to the continuation of its business development, especially the development of cutting-edge technology chip business.

"our plan for contract manufacturers to increase chip production has not changed, but these contract factories do not have enough capacity at the moment, and it looks like it will be difficult to achieve next year," Matsumoto said. "maybe we can gradually resume this plan from the year after next."

This year, Roma received two government subsidies to strengthen its production in Japan and Malaysia. But Matsumoto said that given the growing demand from carmakers for carbon-neutralization processes, the government could further offer more incentives to semiconductor manufacturers and their subsidiaries, such as lower taxes and renewable energy costs.

Matsumoto also said: "the use of renewable energy is a big challenge for us. We need to consume a lot of electricity, but this kind of energy is very expensive in Japan. " When talking about how to increase Roma's production capacity in Japan, Matsumoto said, "moving production lines to other countries may be an inevitable option for us.