A shortage of memory and storage semiconductor chips has led to major production halts across the world in businesses ranging from mobile phones to medical devices.

The automobile industry, which is seeing strong demand, is especially hard hit. A car may be the most powerful computer people own, with more processing power than a laptop. A new vehicle has about 1,400 different semiconductor chips used in its steering, brakes, lighting, mobile communication, entertainment and other systems.

The chip shortage has forced all three major U.S. automakers, Ford, General Motors (GM) and Stellantis, which owns Chrysler, to shut down several manufacturing plants. Europe’s Volkswagen, BMW and Renault as well as Chinese auto makers have also been forced to cut production.

This year, such production cuts are estimated to reduce total revenues of auto makers around the globe by $110 billion. Ford expects 2021 profits to be reduced by $2.5 billion and GM by $1.5 billion to $2 billion.

In 2020, worldwide semiconductor sales grew to $464 billion, a 11% increase compared to 2019, according to IDC.  

The chip shortage faced by the auto industry is due to shifts in supply coupled with continuing rise in overall demand. Last year, during the pandemic lockdown, auto companies shut production. So chip manufacturers shifted their capacity for auto chips to supplying mobile, gaming, personal computer and other digital product companies, which saw – and continue to see - booming demand.

Micron Technology, based in Boise, Idaho, is among the semiconductor companies benefitting from both the higher prices for chips, due to shortages, and rising volume due to demand.

“Micron set multiple market and product revenue records in our third quarter and achieved the largest sequential earnings improvement in our history,” said Sanjay Mehrotra, chief executive, in a statement this week.

During the first nine months of its current fiscal year 2021, Micron’s revenues jumped 26% to $19.4 billion, over the comparable year earlier period. Its 17% pre-tax margin in the fiscal 2021 period - $3.3 billion in pre-tax profits – was 50% higher than that in fiscal 2020.  

In addition to autos, the company’s memory and storage chips are used in computers, smartphones, information technology networks, industrial machines, consumer and other products.

Founded 1978, Micron has a market value of $90 billion. In fiscal year ended September 2020, the company earned $3 billion in pre-tax income on $21.4 billion in revenues.

 Operating in 17 countries, it has 13 manufacturing plants and 14 laboratories and over 40,000 employees.

Sanjay Mehrotra, 63-years-old, joined Micron as CEO in 2017. In fiscal 2020, he received salary, bonus and stock options worth $20 million. His stock ownership in the company is worth $101 million.

Earlier, he was at SanDisk, a chip maker he co-founded in 1988. He worked at SanDisk, including as chief executive from 2011 until its sale to Western Digital in 2016, for $19 billion.  

Mehrotra received a golden parachute of $22 million, as a result of the sale. Also, options and other stock he owned in SanDisk were worth $46 million.

Prior to SanDisk, Mehrotra held design engineering positions at Integrated Device Technology, SEEQ Technology and Intel Corporation.

Mehrotra earned both bachelor’s and master’s degrees in electrical engineering and computer science from the University of California, Berkeley. He is a graduate of the Stanford Graduate School of Business Executive Program.

He holds more than 70 patents and has published articles in the areas of nonvolatile memory design and flash memory systems.

Some analysts expect chip production to ramp up to fully meet demand from auto companies and other users by the end of this year. Overall, semiconductor chip sales are forecast to total $520 billion this year, up 13% from 2020, according to IDC. But Volkswagen and other automakers see the shortage continuing into 2022.

In the past, the demand and supply of semiconductor chips has been highly cyclical, with sharp swings in revenues, profits and stock prices of Micron, Western Digital and other companies in the business.

Now, Micron, other vendors and analysts expect demand for chips to continue rising due to several factors. With the introduction of 5G mobile services, data access will be many times faster. Consumers will connect to more mobile devices, from health care technology to photography powered by artificial intelligence, all of which require more chips.

The demand for chips will also continue to rise due to more chips required to run electrical and autonomous vehicles; chips for virtual reality glasses as well as smart watches, TVs and speakers; and automation of industrial, manufacturing, warehousing and other business operations.

Mehrotra is optimistic about the future. He says in a statement that “Micron is in the best position ever to capitalize on the long-term demand trends across the data center, intelligent edge and user devices.”

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