The shortages of computer chips that forced global auto makers to scrap production plans for millions of cars over the past two years are easing – at a new and permanent cost to the car companies.
What had been “war room operations” to manage chip shortages are becoming embedded features of vehicle development, say executives in both industries. That has shifted the risks and some of the costs to auto makers.
Newly created teams at the likes of General Motors Co, Volkswagen AG and Ford Motor Co are negotiating directly with chip makers. Auto makers like Nissan Motor Co Ltd and others are accepting longer order commitments and higher inventories. Key suppliers including Robert Bosch and Denso are investing in chip production. GM and Stellantis have said they will work with chip designers to design components.
Taken together, the changes represent a fundamental shift for the auto industry: higher costs, more hands-on work in chip development and more capital commitment in exchange for better visibility in their chip supplies, executives and analysts say.
It is a U-turn for auto makers who had previously relied on suppliers – or their suppliers – to source semiconductors.
For chip makers, the still-developing partnership with auto makers is a welcome – and overdue reset. Many semiconductor executives point the finger at auto makers’ lack of understanding of how the chip supply chain works – and an unwillingness to share cost and risk – for a large part of the recent crisis.
The costly changes are coming together just as the auto industry appears to be moving past the worst of an even more costly crisis that by one estimate has cut 13 million vehicles from global production since the start of 2021.
C.C. Wei, chief executive of the world’s biggest chip maker Taiwan Semiconductor Manufacturing Co, said he had never had an auto industry executive call him – until the shortage was desperate.
“In the past two years they call me and behave like my best friend,” he told a laughing crowd of TSMC partners and customers in Silicon Valley recently. One auto maker called to urgently request 25 wafers, said Wei, who is used to fielding orders for 25,000 wafers. “No wonder you cannot get the support.”
Thomas Caulfield, GlobalFoundries Inc chief executive, said the auto industry understands it can no longer leave the risk of building multibillion-dollar chip factories to chip makers.
“You can’t have one element of the industry carry the water for the rest of the industry,” he told Reuters. “We will not put capacity on unless that customer is committed to it, and they have a state of ownership in that capacity.”
Ford has announced it will work with GlobalFoundries to secure its supply of chips. Mike Hogan, who heads GlobalFoundries’ automotive business, said more deals like that are in the pipeline with other car makers.
SkyWater Technology Inc, a chip manufacturer in Minnesota, is talking to auto makers about putting “skin in the game” by buying equipment or paying for research and development, Chief Executive Thomas Sonderman told Reuters.
Working closer with car makers and their suppliers has brought onsemi $4 billion in long-term agreements for power management chips made from silicon carbide, a new material gaining popularity, said Chief Executive Hassane El-Khoury. “We’re making billions of dollars of investment every year in order to scale that operation,” he told Reuters. “We’re not going to build factories on hope.”
Michael Hurlston, the CEO of Synaptics Inc, whose chips drive touch screens, which had held up some auto production, said the recent, more direct collaboration with auto makers could create new business opportunities as well as managing risks.
Hurlston said the automotive industry has warmed up to using OLED screens, which are less durable than the LCD screens, a factor that many perceived would limit their use in cars despite better contrast and lower power consumption.
“But that perception has changed pretty dramatically over the last two years. And that perception has changed as a direct result of us being able to talk to (the auto industry),” he said. “The paradigm has really, really shifted for us.”
Chief executives of Japan’s Renesas Electronics Corp and Dutch NXP Semiconductors N.V. have both told Reuters they are co-locating engineers to help auto makers design a new architecture where one computer would centrally control all functions.
“They have woken up,” said NXP CEO Kurt Sievers. “They have understood what it takes. They try to find the right talent. It’s a big shift.”
The average semiconductor content per vehicle will exceed $1,000 by 2026, doubling from the first year of the pandemic, according to Gartner. One example: the battery-powered Porsche Taycan has over 8,000 chips. That will double or triple by the end of the decade, according to Volkswagen.
“We have understood that we are a part of the semiconductor industry,” said Volkswagen Group’s Berthold Hellenthal, a senior manager for semiconductor management. “We have now people dedicated just to strategic semiconductor management.”
Securing – and keeping – chip engineers will be a challenge for auto makers, which will have to compete against the likes of Alphabet Inc’s Google, Amazon.com Inc and Apple Inc, said Evangelos Simoudis, a Silicon Valley venture capital investor and adviser who works with both established auto makers and startups. “I think that that would lead to acquisitions,” he said.
Unlike Tesla Inc, which designs its own core chips, Simoudis said traditional auto makers will have to juggle production of legacy auto models as they make new investments.
AutoForecast Solutions (AFS) estimates that microchip shortages have forced auto makers around the world to cut over 13 million vehicles from production plans since the start of 2021.
“It’s an arrogant industry,” said Sam Fiorani, vice president of global vehicle forecasting at AFS. “Sometimes it just bites them in the rear.”
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TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
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