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From Shortage to Surplus: What’s Happening with the Global Chip Supply?

10/7/2021
From Shortage to Surplus: What’s Happening with the Global Chip Supply?

It’s been at least a decade since we’ve seen such a widespread shortage of microchips. Only this time, the chip shortage is of greater scale and magnitude than ever seen before. This is because the use of computer chips has soared. These chips have become necessary in many of the items we interact with daily.

Semiconductor chips can be found in a variety of items—no matter how simple or complex.

Not only are more products using microchips, they’re also using more of them! In particular, the push towards green energy has led carmakers to develop electric vehicles, which use more semiconductors than traditional cars. For example, a new Ford electric vehicle requires 3000 chips, while a Ford Focus needs only 300.

Microchips have increasingly become a part of modern cars.

The popularity of chips means that this shortage has spared no industry or region. Even companies that entered 2021 with a stockpile of chips, like Huawei and Toyota, have since burned through them. They've had to decrease production—just as their competitors have.

Automobile companies were one of the hardest hit during this shortage. The industry is predicted to lose a total $210 billion in revenue this year. The automotive industry has had an even harder time securing chips than others. This problem stems back to the start of the pandemic. In 2020, car sales dropped and automakers canceled their chip orders from manufacturers. As a result, chipmakers weren’t prepared to meet the industry’s needs when sales finally bounced back in 2021.

Alongside companies, consumers are also experiencing the consequences of the shortage. Many products have become nearly impossible to purchase. New cars garner month-long waiting lists and gaming consoles sell out in minutes. Even people after less hyped products suffer out-of-stock notices and long backorders. These once-common products include refrigerators, freezers, and washing machines.

 

What caused the global chip shortage?

It’s natural to wonder why this happened—but there isn’t a singular answer.

COVID-19 lockdowns heightened demand for electronics while closing down semiconductor factories. Demand for electronics skyrocketed when people worked, studied, and played all from home. This disrupted an already precarious situation around the global chip supply. The fragile supply chain came tumbling down as chip factories struggled with increased demand, labor shortages, factory closures, freight bottlenecks, and freak weather accidents.

The pandemic only expedited a process already in motion. This is because microchips had become a vital component of everyday items by the time the coronavirus hit. Toasters and tablets alike use chips (albeit in different quantities and types).

Competition is fierce for a limited amount of chips! 

Even without added pressure from the pandemic, demand has long been rising at a rate that chip production would be unable to match. This has led to many supply chain experts agreeing that the shortage was inevitable.

When will the chip shortage end?

As with any prediction, there are many conflicting answers from different sources. However, the analyst firm IDC, has seen many experts backing their report. This report stated that the semiconductor industry will see: 

"normalization and balance by the middle of 2022, with a potential for overcapacity in 2023 as larger-scale capacity expansions begin to come online towards the end of 2022.”

This answer should come as a relief for corporations and consumers alike. The end is definitely in sight.

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