A War on Two Fronts

Greetings! Welcome back to The Supply Times. This issue, we take a look at the chip wars being waged against Intel and a roundup of the biggest issues CEOs will be facing in 2022.

Industry Highlights: Chip Wars

The volatility of the pandemic era has left many industries scraping to get by, but that’s definitely not true for chipmakers.

According to a recent report from trade credit insurer Euler Hermes, semiconductor global sales hit an all-time high of $553 billion—a 26% increase over last year. The report predicts another 9% increase for 2022, putting the industry’s worth at over $600 billion.

Euler Hermes attributes the unprecedented growth to three factors: an “unusually strong demand” for consumer electronics, a price hike due to tightened supply and demand dynamics, and improvement in semiconductor product mix.

This continuing growth is resulting in chipmakers scrambling to scale their businesses as quickly as possible. Intel announced last week that they committed $20 billion to fund the building of two chip factories in Ohio—a facility that would be the largest private-sector investment in the state’s history. It’s the company’s latest attempt to regain the throne as the world’s largest chip manufacturer, having lost the title to Samsung and being forced to outsource its production to TSMC last year. Intel’s new Ohio facility isn’t set to open for production until 2025.

Tech experts think Intel’s power move is cute, but it’s an exercise in futility. Intel execs made it clear the facility could only achieve its full potential with funding from the CHIPS Act—a bill that would grant American semiconductor companies $52 billion in growth funding. The bill, which passed in the Senate but is currently stalled in the House, is an attempt to reduce US reliance on Chinese goods, a hot button issue I described in my last newsletter.

Furthermore, TSMC is also poised to invest in growth. According to Financial Times, the company plans to raise its capital expenditure to $44 billion in the coming year, a nearly 47% increase over 2021.

Then again, this chip race might be all for naught anyway. While Euler Hermes forecasted industry growth this year, it also said we can expect a “period of adjustment over the next few years.” Experts at Morningstar Research agree, predicting a chip glut that will cause downward pressure on the market by 2024.

Bottom line: The US semiconductor maker is in transition after falling behind rivals in chip making, as competitors have stolen market share from across semiconductor categories. As Intel tries to reverse this decline, their turnaround plans do have a five-plus years’ time horizon.

The Future of Work - Office Wars

The last two years have presented CEOs with challenges that aren’t in the executive playbook: rising inflation, COVID surges, and workers quitting their jobs at historic rates.

Their new plan is straight from the old adage: Improvise, overcome, adapt.

Here’s how they plan to do it:

★ The War on Inflation

Inflation last year rose the fastest it has in nearly 40 years, hitting 7% by December. Input costs are up, and it’s getting passed to consumers. Experts suggest it might not ease for 18-24 months. For many CEOs, it’s the first time they’ve experienced prolonged inflation.

Many companies are trying to balance costs and reconfigure pricing strategies so they can hold on until the supply chain will rise to meet demand.

★ The War on COVID

The new omicron strain brought another round of office closures and staffing shortages, but this time, executives seem more willing to be flexible—and accept that this might be the office environment of the future.

Companies previously hesitant to open up flexible work options for their employees are slowly coming around to the idea, and data from The Conference Board suggests that an increased shift to the hybrid work model could continue post-pandemic. According to the Wall Street Journal, others have put incentives in place that entice workers to comply with updated vaccination policies and work in person.

★ The War on Talent

By far the most concerning challenge CEOs are bracing for is the talent shortage. According to an Indeed.com report, there are 10.9 million job openings in the US as of January 7—a number that’s not expected to fluctuate much in the coming months.

To retain top talent, many business leaders are keeping a closer eye on worker satisfaction surveys, increasing wages and other perks, and investing more in tech solutions.

The shift in tactics is making many workers feel more empowered than ever. A recent survey from HR company Randstand NV shows 77% of workers expect more flexibility in their jobs. “I refuse to accept a position that’s just a position,” a former retail employee told the Wall Street Journal last week. “I’m looking for something that I actually want to do.”

The Supply Aside: What I’m Reading, Watching, Listening to, and Thinking About

RE: Supply Chain, Work, and Beyond

• Read: The story of Patrick and John Collison—the young brothers who struck gold with their payment app, Stripe—is absolutely fascinating. This essay from The Generalist compares the duo to what would happen if Romulus and Remus got along, and it shares some of the incredible-but-simple insights into how they formed their Rome-sized empire. As a business owner, it’s hard to imagine life without this tech. Check it out HERE.You also might have noticed that the newsletter often includes what appears to be images scanned from the newspaper. That’s because they absolutely are. Despite the availability of quality—and not-so quality—journalism on the world wide web, I still have several papers delivered to my house. Why? Because this stat scares me:

• Watch: Market volatility for both the equities and crypto market is causing angst. As for the former, all eyes are on the impending Fed rate hike which has historically helped the stock market. According to Bloomberg, analysts don't think lingering concerns about a tighter monetary policy or the spread of Covid will prevent the broader market from notching another positive year. A potential wildcard to the markets later in the year are the US midterm elections. Depending on the certainty of the outcome and the subsequent effects on policy changes, increased ambiguity is expected in Q4.As for now, we have officially entered correction territory, so buckle up for the ride. The crypto markets have seen over a trillion of valuation wiped away in the past several weeks. Crypto is not immune to widespread shifts in investor confidence, and investors hope that this too shall pass. For now, the world’s largest digital asset, Bitcoin, is mired in consecutive days of declines. It’s currently more than 50% below its November peak. Crypto winter indeed!

• Think: The growing chorus of a 4-day workweek has got me thinking if this might become another way to attract and retain talent. According to Gartner Research, year-to-date salary increases in the US have been more than 4%, compared to a historical norm of 2%. However, even this will fall short in the face of inflation and external opportunities with significantly higher salaries. So now there’s a growing number of companies that are keeping their compensation flat and instead are reducing the number of hours worked.They predict that a handful of organizations will adopt 32-hour work weeks with the same compensation as a new way to compete for knowledge workers. A case in point comes from our friends across the pond. The four-day work week will be trialed for a six-month period starting in June, with 30 companies already committed to participating. Read about the experiment HERE.

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