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chip shortage

The 2020-21 Global Chip Shortage: An Ongoing Crunch

Consumers are facing price rises and shortages of products from TVs and mobile phones to cars and games consoles as a global shortage in semiconductors grows. The severity of the global chip shortage has gone up a notch over the last few weeks and it’s now looking as though millions of people will be impacted. 

The shortage in chips, the “brain” within every electronic device in the world, has been steadily worsening since last year. According to the Semiconductor Industry Association Global, semiconductor sales increased 6.5 percent in 2020, demonstrating a rapidly growing demand for chips due to the cross-industry competition among Automakers and Tech Giants.

The wireless community, industrial, aerospace, military—anyone or everyone whose products require semiconductor chips is currently facing a shortage. The computer chips in highest demand are not particularly sophisticated or expensive. But they are indispensable components used in everything from kitchen appliances to washing machines and electronic gadgets. Goldman Sachs analysts estimate reduced supply could boost prices by 1-3% in affected categories.

The shortage was already there, but COVID-19 made it worse

A chip shortage was already on the rise when US placed trade sanctions on China during Trump administration, and new 5G phone rollouts added to the crisis. Huawei, knowing they couldn’t buy chips after a certain time had placed big orders. Likewise, Apple and other smartphone makers also placed large chip orders, which kept the chip suppliers extremely busy.

The Coronavirus pandemic, however, plunged the entire global economy into recession last year, overturning supply chains and changing consumer shopping patterns. This has been the primary reason why as to the said chip shortage hit new limits.

Tech companies saw a boost in product demand and sales when people began working from home and children were attending school remotely, causing a massive spike in PCs, tablets and consumer electronics. In the meantime, reduced mobility and lockdowns made carmakers halt their manufacturing, causing them to cut back orders for chips used in automobiles.

Cost of silicon – which is a core ingredient of chips – has gone up as well with the increased COVID-19 vaccine production happening globally; the silicon needed to make the vials is the same as the silicon used to manufacture chips and personal computers.

Automobile giants are taking the biggest hit while Tech companies sustain

Automotive industry is facing the biggest loss so far. The average car has between 50 and 150 chips. They’re used in a growing number of applications, including driver assistance systems and navigation control.

Lots of automobile manufacturing plants were forced to adapt production and suspend manufacturing due to the shortage. The problem continues to disrupt the industry with manufacturing difficulties for leading models of many carmakers, including Ford, Volkswagen, Nissan, Audi, Mustang, Hyundai, Land Rover, Range Rover, Mercedes-Benz C-Class, Mini Cooper, Mitsubishi, Nissan, Subaru.

However, Intel, the biggest chip manufacturer in the world in 2020, is planning to start producing chips to address shortages at U.S. car plants with a $20 billion plan in increasing advanced chip manufacturing capacity. And many of the Asian chip manufacturers saw increases in their revenues.

CompanyHome Country2020 Sales2019 Sales2018 Sales
IntelU.S.A73.8970.869.9
SamsungSouth Korea60.4855.7178.5
TSMC*Taiwan45.4234.6732.2
Extracted from table 2: top global producers of semiconductors, https://www.thomasnet.com

For most companies, the best way to get through this crisis would be to cultivate strong, stable relationships with their suppliers, partners, and personnel. The semiconductor supply however will continue to be constrained and won’t recover in the short term, predicting the shortage would persist till mid-2022 or beyond.

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