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Supply and demand: A closer look at the global chip shortage

Updated: Jul 9, 2021

How the pandemic has impacted the semiconductor supply chain and why it’s affecting our everyday lives


If you have recently looked to purchase an updated phone model or the latest gaming system, you’ve likely encountered empty shelves or lengthy backorders. The same situation has applied to refrigerators, washers and dryers, dishwashers, and other common household appliances. If you have been looking for a new car, you could end up paying thousands more than the sticker price too.


What is causing this drought? A global chip shortage.


Semiconductor Chips

Semiconductor chip balancing on on corner against white background

Semiconductor chips are tiny, integral pieces to nearly every kind of modern technological device. Essentially, they are what make your phones, TVs, appliances, and cars work. These chips are different for every type of technology. As technology has developed, the demand for trillions of these chips has increased.


More than a trillion chips are typically made each year in a process that takes thousands of steps for each chip. Built on a “silicon wafer,” the chips are so small they cannot be made by hand. Sophisticated and advanced technology is needed for their creation – which uses its own semiconductor chips.


After assembly and testing, these chips are ready for distribution, but that process came to a screeching halt as coronavirus began to spread in 2020.


Shortage Causes


Pandemic Impact

When the pandemic hit, experts assumed the demand for chips would decrease. They were wrong. Working from home and remote learning increased the need for devices, workstations, gaming devices, and more. The demand nearly doubled.


Geopolitical Tensions

From the beginning of the chip shortage, tensions between countries that manufacture the components increased as well.To protect their interests, countries drastically reduced outflow to foreign consumers and shifted to maintaining their own stockpiles of semiconductor chips. This directly impacted the dwindling supply chain.


Natural Disasters

A major drought in Taiwan, a plant fire in Japan, and February’s power grid failure in Texas combined to shut down the production of semiconductor chips. In Austin, Texas, alone, nearly a dozen chip manufacturing plants were shut down for weeks.


Shipment Delays

Trucks, container ships, railroads, and airlines faced staffing shortages during the pandemic, which made delivery of chips and components not just delayed but sometimes canceled altogether. Moreover, in many ports, even if ships arrived, there were no dock workers to unload or move the products to storage.


Existing Technology Repair

With the added use of technology and fewer new products available, many consumers looked to have their laptops and appliances repaired rather than replaced. Unfortunately, the same dearth of chips made repair times much longer and more expensive. Experts estimate repair costs increased 30%, making it almost as pricey as a new device would be if available.


Outlook


Semiconductor chip production may never return to normal as it has been, and the timing is uncertain. The pandemic has made many countries realize that the “global” production of chips may not be in their best interests. The United States is now looking for a self-reliant production model that will bring total production elements inside the country’s borders.


However, one obstacle to this sort of production model is the country’s infrastructure and capital supply. This is why many leaders are calling for a well-funded infrastructure plan. Infrastructure to many experts isn’t only roads, bridges, buildings, and water/sewer systems (which rely on chips). It is also its communications system – a system that does not function without semiconductor chips. Investment in chip production, however, would be a long-term solution that comes with short-term costs. As a result, U.S. consumers would face higher prices for their devices, and the question is whether or not they would be willing to pay it.



With the supply of semiconductor chips in high demand and no timetable for increased availability, experts advise that you are more likely to save on costs and have a better product selection if you can wait to purchase higher ticket items.




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