Unfortunately, there aren’t enough chips to go around.
Consumers are starting to feel the pinch as the global chip shortage is pushing up prices of items such as laptops and printers and is threatening to do the same to other top-selling devices including smartphones and appliances. Naturally, we’ve received our fair share of questions about this shortage, and we’d like to share a few of the most frequently asked questions with you.
What exactly is the chip shortage?
Since late 2020, these tiny integrated circuits that are nowadays found in practically every manufactured device with a battery or a plug – from microwaves to TVs to cars to toothbrushes – have been in short supply. Auto companies, which rely on chips from everything from the computer management of engines to drive assistance systems, have been the most visible victims of the chip shortage.
Is the chip shortage overblown? Will it impact me and/or my business?
The chip shortage is unquestionably real, but it’s not affecting industries and people the same way. Many industries have felt the pinch since the early days of the pandemic. On August 19, Toyota announced that it will cut production in Japan by 40% in September. Ford and GM are also adjusting with Ford recently announcing that it will temporarily shut down its Kansas City assembly plant for a week, which is significant because this particular plant builds its best-selling F-150 trucks. If you’re in the market for a car (new or preowned), this will most certainly impact you. Growing prices are snowballing their way through hardware suppliers and key materials in chip making as the industry rushes to meet rising demand and plug supply holes. As a result, many of the world’s large chip makers are raising prices they charge to the brands that make PCs and other gadgets.
What caused the chip shortage?
At first glance, the chip shortage might seem like a classic bullwhip effect resulting from a bump in consumer demand brought on by the 2020 pandemic. At first, consumer spending tanked. Then, a couple months later, consumers stocked up on all kinds of chip-heavy gadgets such as laptops and tablets for their home offices, remote learning, and entertainment. The manufacturers that build those devices then sent a wave of semiconductor orders rippling up the supply chain. This quickly overwhelmed the few chip foundries that manufacture virtually all of the world’s computer chips.
However, a more detailed look at the current logjam suggests the issues stem from a deep clash of different industry cultures, one that will likely pose ongoing operational challenges as semiconductors assume a central role in the electronic systems driving automotive and other industrial products.
Can’t we just make more chips?
Making computer chips is a complex process. It’s difficult and expensive to build new facilities to manufacture the vital silicon component, which means companies have to rely on existing plants. A new semiconductor factory can cost up to $20 billion to build. Lasers print billions of transistors onto tiny areas of silicon wafers; it can take three to four months to turn a large silicon wafer into a useable batch of chips.
When will the chip shortage end?
A variety of analysts agree that the most problematic shortages will begin to ease in the third or fourth quarter of 2021, though it could take much of 2022 for the resulting chips to work their way through the supply chain to products.