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Not So Fast - When Will The Chip Shortage End?


Vector drawing of semiconductor chip in manufacturing process with computer arm drawing on sky blue, round chip

Intel's chief executive Pat Gelsinger has said the chip shortage plaguing auto, appliance, smartphone, computer, and innumerable other manufacturers will last longer than expected. Gelsinger previously forecast supply issues on chips to stretch into 2023 but now believes it will last into 2024.


The industry's ability to ramp up supply at the pace originally predicted is at the heart of the delay. Companies like Intel, Samsung, Qualcomm, Advanced Micro Devices, and TSMC are ready to go all-in on production, but they can't get the equipment needed to start.


For example, Intel is looking to build two plants in central Ohio at a cost of $20 billion, with its sights set on bringing chip manufacturing back to the U.S. and putting itself back in the top spot for semiconductor production. Secretive Giant TSMC has a $100 billion plan to fix the chip shortage as well. However, getting the parts, machines, and qualified personnel to put these plants into operation is being impacted by labor shortages, inflation, Covid, and the war in Ukraine.


In addition to the time it will take to construct the factories and source the equipment, typical lead times can exceed four months for products already well established in a manufacturing line. Increasing capacity by moving a product to another manufacturing site usually adds another six months (even in existing plants). Switching to a different manufacturer typically adds another year or more because the chip's design requires alterations to match the specific manufacturing processes of the new partner. And some chips can contain manufacturer-specific intellectual property that may require alterations or licensing.


As a result, many companies are sticking with their business model of using contract chipmakers in Taiwan and South Korea to produce their chips, but these are operating at full capacity.


One of the primary industries that a prolonged chip shortage will impact is EV makers. This could be seen as a blessing in disguise, however, since Biden's goal of having half the cars in America EVs by 2030 couldn't be supported by the current electricity infrastructure in the U.S., and modifications to it will take more than the eight years allotted in the plan.


What this means for consumers


If money is no object, kitchen appliance overhauls, new car purchases, computer upgrades, and the latest smartphone can all be had, but expect delays and higher than expected prices. Analysts believe prices and availability for these and many other products will level out after the first quarter of 2024. So, maybe you can drive your clunker one more year, see how the electric grid is shaping up to handle increased EV use, and then buy your new Tesla for a fair market price.




 


Sources: Wall Street Journal, WeForum, CNBC, McKinsey & Company