Global Chip Shortage

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What is the global chip shortage crisis?

global chip shortage

If you have ordered or purchased electronic devices lately, you have probably noticed the high pricing of many of them, as well as the lack of availability of many products in local and even international marketplaces. You are not alone; unfortunately, this is a global issue resulting from a shortage of electronic chips and is interrupting the manufacturing lines in many companies worldwide.

Electronic device manufacturers worldwide are now having difficulty getting supplies of computer chips since there are not enough chips to fulfill the rising industrial demand. As a result, manufacturing and delivery of products are being delayed, and prices are rising significantly.


What are electronic chips, and what are they used for?

Electronic chips, or simply chips, are microcircuits made up of numerous layers of semiconductor materials, copper, and other elements. Hundreds of tiny transistors are found on each chip, and the size and shape of the chips vary depending on their targeted use. The manufacturing of chips needs many raw materials like silicon, complex steps, and time and effort. These chips are considered the core of modern electronic devices, and they may be thought of as the brain controlling all of the electronic devices we use daily. These chips are responsible for collecting, storing, and processing data in electronic devices. Electronic chips have a wide range of applications in various industries, and our reliance on them is growing daily due to fast technological advancement. Chips are commonly used to produce different computers, smartphones, cars, medical equipment, military industries, radios, and TVs.

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What caused the global shortage of electronic chips?

In recent years, increased global demand for electronic devices and the emergence of 5G technology led to remarkable growth in electronic industries. That has put pressure on factories and companies to provide the necessary parts to manufacture these devices, which are electronic chips. When manufacturers stopped operating at the beginning of the COVID-19 pandemic, there was a disruption in semiconductor supply. However, manufacturing has returned to normal; but a jump in demand due to shifting consumer behavior has resulted in a significant shortage of chips.

The emergence of a shortage in electronic chips during the past two years was due to several factors. The most important is the Coronavirus pandemic, which affected the world and affected all lifestyles. One of the most noticeable results of this pandemic is changing the consumer behavior of individuals and institutions, as education in most countries of the world shifted to online learning. In addition, companies adopted the work-from-home system to reduce exposure to the virus, and therefore, not many chips were manufactured. These changes in individuals' behavior have increased the demand for computers, devices, and gaming consoles. Thus, increased pressure on the factories that produce electronic chips. The year 2020 witnessed an increase of 6.5% in electronic chip sales, which continued in 2021 until it reached 26% in the second quarter. Therefore, it is not surprising that manufacturers of these parts are having difficulty-keeping pace with the increasing demand for these parts.

In addition to the significant impact of the Coronavirus pandemic, several other factors contributed to the shortage of electronic chips. Environmental factors played a role in this shortage, as recently, a factory in Taiwan closed due to a drought that hit the country; this factory is one of the largest producers of chips in the world. The Taiwanese company TSMC was affected by the drought and was forced to discontinue its chips production because it requires large amounts of water. Now, TSMC is facing the worst drought ever, which resulted in a decrease in the amount of water in the company's tanks, and currently, the company is bringing water to the factory through trucks, which led to the delay in the production process. Moreover, the unprecedented global water shortage may cause more chip shortages in the future. In addition, several accidents occurred that contributed to the delay in supplying companies with these chips, including the disruption of movement in the Suez Canal due to the stranding of the Evergreen ship last March and fires in the largest factories producing these parts.

In 2020, the US government imposed restrictions and fines on Semiconductor Manufacturing International (SMIC), the largest chipmaker in China. The effects of Trump's trade war against China made it difficult for any company related to the United States to buy Chinese semiconductors, regardless of whether they can be manufactured in the US or not. That made it difficult for China to sell its products to many major companies worldwide. These restrictions forced companies to look for alternatives, such as dealing with other manufacturers, including TSMC and Samsung. In addition, that led to increase pressure on these two companies, and they were unable to meet the needs of the American and global markets.

Furthermore, poor planning by manufacturers had played a significant role in exacerbating this crisis. In the second quarter of 2020, most major manufacturers stopped their production lines during the Covid-19 pandemic and canceled all orders to supply their electronic parts. As a result, providers have found new consumer markets for chips that continued during the pandemic. When the production companies decided to resume their work, they found high competition in acquiring electronic parts and faced great difficulty in providing the necessary quantities to complete the manufacturing process.


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Effects of the global chip shortage 

This shortage is affecting the business of many sectors because electronic chips are the basis of every electronic device, with millions of them being consumed every day.  The crisis has led to a significant disruption in the production process and delays for weeks and months to reach customers.  In addition, some companies were forced to temporarily stop their production lines until the necessary parts arrived to proceed with their work.  According to some sources, Gartner Research reports that the expected loss to the automotive sector is estimated at sixty-one billion dollars.  Many global car companies have announced urgent measures during this crisis, including reducing or stopping production.  For example, Toyota announced a 40 percent reduction in its production capacity this year.

The coronavirus pandemic has shown that the global supply chain of computer chips is highly fragile and unable to respond quickly to fluctuations in demand.  Chip manufacturers, faced with massive demand for their products, are raising their prices. Therefore, increasing the cost of electronic devices to consumers.

The shortages have prevented most IT hardware manufacturers from securing supplies of semiconductor computer chips, which have led to delays in the production and delivery of goods and an increase in the price tag.  This shortage in CPUs and other components is likely to affect the availability and price of IT hardware for the next 12 to 18 months, judging by the experts of major companies such as Intel, IBM, Extreme, Cisco, and Juniper. Therefore, if you plan to purchase any new computers or IT hardware by the end of this year or the beginning of 2022, you should order them now.

 "We are currently seeing delays of weeks and even months on laptops, desktops, servers, docking stations, switches, i7 processors, LCD monitors, and wireless access points," said Kelsey Kingsbury, Director of Procurement at Platte River Networks.  As a result, customers should consider ordering as quickly as possible.

What are companies doing to overcome this shortage?

Many companies had to close some factories and reduce production, and others have reduced working hours, while some have given leave to workers. Recently, many companies have begun adopting new business strategies to keep pace with the increasing demand for electronic chips. Therefore, more industries have started the digital transformation, and many manufacturing companies and some governments are increasing their production capacity to match this demand. TSMC recently invested $100 million to increase its production capacity over the next three years, while Samsung and SK Hynix have invested $451 billion to increase the capacity of their electronic parts factories.

American companies have now begun to increase their production of these parts to achieve independence and reduce reliance on Taiwan and South Korea to supply them with these parts. The European Union also announced its agreement to support these industries and increase the production rate of chips to reduce the shortage.

How long can this shortage of chips last?

The ongoing global shortage of computer chips poses significant challenges, and this shortage is expected to continue over the next two years. This supply and demand chain problem is causing great trouble in various sectors, and the crisis is expected to worsen. In addition, it may take up to two years for the chip-producing factories to be operating at their full capacity. This crisis was expected to end at the end of 2021, but according to experts' opinions, indicators confirm that it will become worse in the coming months, and it could continue until 2023.

What can consumers do until the crisis is over?

Many experts advise consumers not to rush to buy new electronic devices during the current crisis, especially if it is not an urgent necessity.  Instead of purchasing new devices, refurbished used devices can be an alternative, as they are of equal quality compared to new ones.  They also advise the owners of companies and businesses who plan to obtain new devices to order them as soon as possible, to avoid any delay in their work.



Where are we going in this global crisis?

In the end, these chips require investments that may reach billions of dollars. The process of building and equipping new factories and production lines to manufacture chips takes several years, in addition to the need for specialized experts and well-trained workers.  Chip manufacturers have faced a sudden increase in demand for the production of electronic devices.  It happened amid many circumstances, the most important of which was the high demand for computers and electronic gaming devices in light of the Corona crisis and the accompanying online working and studying during quarantine.  In addition, other factors, including environmental disasters and the policies of Western countries in imposing sanctions, have contributed to the worsening of this crisis.

Businesses and consumers around the world are facing the brunt of the unprecedented shortage of semiconductor chips. From delayed car deliveries to shortages of available home appliances and smartphones, this crisis has consequences.  Some companies use chips to raise their stocks by reducing the number of supplied chips to boost the demand for their products. This shortage has reduced production capacity and raised costs for even the cheapest electronic components, which led to an increase in the prices of final products. The increasing demand for electronic devices, also the increased tendency of people to consume chips led to a rise in their prices.  Although this crisis will reach an end, similar problems are expected to rise soon because continuous technological development will exhaust the global production capacity of electronic parts and lead to a crisis that may be worse.