If you have been trying to order rugged devices lately you might have run into trouble with them being out of stock or having long delivery times. So why is that? The fault is not with the manufacturer. There is a global semiconductor shortage and they are needed to produce the units. In fact, they are needed for most electronics.
Today there is a chip in almost everything. The shortage is the reason why people can charge twice the shelf price for a PS5. It’s also why it’s so hard to get a new laptop right now. The shortage has grown into a big problem in many industries and now even governments are starting to react.
US president Biden and his administration are working on an executive order to address the supply chain problem and avoid future shortages. The question is how much he can control the situation considering that most of the production is located in Asia.
Several factors behind the global semiconductor shortage
Unpleasant events such as trade wars and the pandemic have worked together with more positive influences like faster than expected digitalization to cause the semiconductor shortage. Here are some of the major drivers behind this perfect storm.
The Covid-19 outbreak has played a part but perhaps not only in the way you think. Obviously, the temporary shutdowns of factories have caused a backlog but there is also a huge change in how people work. The work from home trend has created a big demand for consumer electronics like laptops to keep things running smoothly. You also have an increased load on servers which drives chip demand, driven by things such as the gigantic uptick in video conferences. In the words of Google CEO Sundar Pichai:
Covid-19 has accelerated the adoption of digital tools and trends by years.– Sundar Pichai, Google CEO
Companies have also had a hard time gauging how fast the economy will restart and when demand is going to be back. While some have stockpiled others misjudged how fast the rebound would happen. Many car companies belong to the latter category and they are running out.
The majority of semiconductors are produced in Asia, where China is one of the big players. The tensions between China and the US have caused many companies to take action. Huawei has spent a lot of time in the crossfire and to secure production they have stocked up on extra semiconductors. Chinese semiconductor companies have also been the targets of sanctions increasing the global semiconductor shortage. US companies, in particular, have sought to move production or change suppliers to other countries, putting extra stress on the logistics and manufacturing in countries such as Taiwan.
The digitalization of the entire world was already increasing exponentially before the pandemic accelerated it further. Today almost everything has a chip in it. The amount of chips in cars has basically exploded during the last 10 years and that is going to continue. Electric vehicles use more semiconductors than regular ones and self-driving cars are going to demand even more. This can be seen now with many manufacturers being hit by the semiconductor shortage and companies such as Ford being forced to shut down production lines.
Smart homes are also a factor. Smart speakers and robot vacuums are becoming the new normal and they need semiconductors. Things that were formerly rather analog, like lights and fridges, are now increasingly starting to get connected. These are just a few of the trends with basically every industry seeing increased digital adoption.
To add fuel to the fire we have an ongoing boom in cryptocurrency with a skyrocketing Bitcoin price. A higher price makes crypto mining much more profitable and the mining companies are scrambling to get ahold of the rigs they need to expand. A mining rig is a machine designed with the sole purpose of mining cryptocurrencies and they use a lot of graphic cards. A standard mining rig uses 6 cards, a more advanced one can easily use 12 and graphic cards need semiconductors.
Shipping – also an issue
Along with the other problems, companies are also having cargo and logistics issues. Once you get ahold of a shipment of semiconductors you’re going to be facing another bottleneck; getting it to where it needs to be. There are delays in several ports and container space needs to be reserved months in advance. Adding to the difficulties, the price of shipping has risen significantly during Covid-19 as well.
When will the semiconductor shortage end?
Unfortunately, it’s unlikely that this is resolved quickly considering that the demand is only going to keep growing. According to Cristiano Amon, the CEO of the chipmaking company Qualcomm, this will likely drag out until late 2021.
The long-term effect of the semiconductor shortage
The manufacturers will obviously increase their production output, but there are going to be other changes as well. In order to secure semiconductor shipments in the future, many of the bigger companies will start production in-house.
Some have already made announcements. Apple has designed their own chip called M1 and it’s already deployed in the latest generation of Macs. Facebook and Google have started designing their own chips as well. This new trend will probably spread among the tech giants fast.
Big companies designing chips does however not mean increased production. Apple’s chip is being built by TSMC, the world’s largest semiconductor manufacturer, and Macs are still available for purchase. If the giants tie up parts of the capacity the semiconductor shortage might be felt longer for smaller companies.