Understanding the Chip Shortage

Microchips play a much more critical part in our lives than you may have ever imagined. Our phones, computers and cars are all powered with the help of chips. Even items like electric toothbrushes, washing machines and refrigerators can’t run without the help of a chip. Hosting billions of transistors within them, these tiny technological marvels function as the brains of our electronics.

The construction of these chips takes place over several days using multiple steps with experts on hand. To put things into perspective, IBM’s newest chip consists of 50 billion transistors in a two-nanometer space. That is equivalent to the size of a fingernail. These chips have been deemed the lifeblood of modern society with an estimated 100 billion chips being used daily around the globe.

As you have heard by now, these tiny pieces of technology that power much of our lives have been in short supply. Even before the pandemic demand exceeded supply, however, now the impact is much greater. Join us as we look at how the chip shortage happened, its impact and when we can expect conditions to improve. 

The alignment of the chip shortage with the pandemic is no coincidence. With people spending more time than ever at home, demand for devices such as tablets, phones, laptops and other streaming devices reached an all-time high…one that manufacturers could not keep up with.

When you pair this with the fact that many factories were shut down for months on end due to the COVID-19 pandemic you begin to understand why a backlog occurred that grew exponentially. With that being said, the issue was not limited to manufacturing. Ports in Asia shut down for months, including China’s Yantian port, where approximately 90 percent of the world’s electronics go through.

The result? Hundreds of container ships are left waiting to dock. Unfortunately, even when the ports did finally reopen, things did not improve. In fact, the supply chain only fell into a deeper crisis. The buildup of items waiting to be shipped created bottlenecks that could not be supported by the transportation supply chain or labor shortages.  

The fallout of the chip shortage has been felt by both businesses and consumers alike. If you are looking to purchase an item that requires a semiconductor you can expect to pay a higher price than before and struggle to even track down stock. It comes down to simple economics. The demand is severely outpacing the supply, leading to inflated prices. Many products are not even shipping right now, or at the very least they are delayed.

Additionally, despite a concerted effort by consumer electronics companies to stockpile chips early on, Apple® announced the chip shortage will likely push back iPhone® production and is having a negative impact on the sales of iPads® and Macs®. An estimated loss of 6 billion dollars has been reported by Apple due to the chip shortage. Parents who are looking to get their kids a new generation Xbox or PlayStation 5 console are having a tough time tracking them down due to the chip shortage.

They often must resort to paying a premium to fetch one from a resale site such as Ebay where people with “bots” are able to secure these high-demand products and flip them for profit. The automobile industry has also been heavily impacted. Nissan, for example, expects to make 500,000 less vehicles due to the chip shortage, and General Motors has thousands of vehicles parked that are completed but can’t be sold due to the lack of necessary chips.

Regardless if you are a business trying to sell your customers these products or you are a consumer trying to buy for yourself, there have been many obstacles with tracking down supply and estimating availability. 

Why Hasn’t This Been Fixed Yet?

Quite simply, there were not many chip manufacturing plants in the world to begin with, and the ones that stayed open during the pandemic endured some unlucky events that delayed manufacturing even further. Nearly one-third of the chips used in vehicles around the world are created in Japan’s Renesas plant, which was damaged significantly by a fire.

Additionally, some of America’s only chip plants in Texas had to halt production due to last year’s winter storms. A severe drought in Taiwan also negatively impacted production since the creation of chips requires quite a bit of water. While many companies have broken ground on new facilities to boost their manufacturing capacity, it remains unclear when exactly production will begin.

Opening a new plant becomes increasingly challenging when you consider that nearly four out of five manufacturers are struggling to find qualified workers, a problem that is magnified in Europe and North America. Specialized training is needed to handle the toxic chemicals used in the semiconductor manufacturing process, which makes these qualified workers few and far between.

Another factor derailing improved conditions is the substrates that make up printed circuit boards, the surface where these chips are mounted, have been difficult to come by. When you pair these factors with the realization that the pandemic has likely permanently changed the way we work and live to rely more heavily on electronic devices you come to understand that the supply chain will need some time to catch up to this increased level of demand.  

There is no doubt, navigating the global chip shortage has been challenging and will continue to provide obstacles. However, a light at the end of the tunnel may be approaching. President and CEO of Hewlett Packard Enterprise, Antonio Neri, believes they will be in much better shape following the summer of 2022. 

Neri is encouraged by the belief new chip fabrication plants will come online soon and deliver more capacity. It was also noted by Neri that, “We are becoming smarter about how we build products, the composition of the building materials, the ability to substitute components along the way.” AMD CEO Lisa Su echoed Neri’s belief that the shortage will end sometime in 2022, with things getting gradually better as more plants pop up. Intel CEO Pat Gelsinger, however, does not expect to see supply-demand balance until 2023.  

There are a few theories on what can be done to get to the desired supply-demand balance we have been lacking. One answer may be the Internet of Things (IoT). This “smart” connected equipment can be used to produce real-time data which grants members of the production team the ability to make informed decisions which increase product quality, speed up delivery times and reduce waste. 

Next-generation innovation may also be key. The GaN semiconductor platform, for instance, will provide 40 percent savings on energy costs by being three times lighter, smaller, and three times faster charging. Finally, to prevent another chip shortage in the future, or at least mitigate it, there must be a stronger diversification of supplier bases. Development of strategic relationships with traders, resellers and distributors can prove critical when there is demand for extra chips in dire situations.  

ACP CreativIT and CCCP are happy to help your organization navigate the chip shortage and provide assistance in tracking down inventory. Contact us at contactus@cccp.com to talk to one of our experts today.