Sadly, it looks like the global chip shortage will not be ending anytime soon according to the South China Morning Post. Unfortunately, the global chip shortage could last until 2022. These little pieces of technology can be found in all manner of electronics. From smartphones to gaming systems, they are the little hearts and brains that power our favorite toys.
However, thanks to the pandemic the companies which manufacture these chips have not been able to keep up with demand. Despite a pandemic and people losing jobs, consumer electronics saw a boom in sales. Especially in the computer and tablet market due to people needing ways to work and study from home.
Sadly, some of our favorite consumer electronics could see price hikes as the price of these chips continues to rise due to the shortage. This has been such a problem that even the President has made plans to help solve it.
The President held a meeting with some of the largest chipmakers to convince them to move some of the production to the US. The first step that brought this chip shortage to life was the tech war between the US and China.
Some say that former president Donald Trump’s move to restrict access to advanced US-origin tech did this. The move changed practice known as “just-in-time” inventory. With just-in-time, there are minimum stocks of chips that the players along the value chain run on. The assumption is that supplies will always be secure and efficient.
What then happened is that companies like Huawei bought chips in bulk. Huawei did this to create a stockpile for itself once the bans took effect. But, by Huawei doing this other companies followed suit.
Global chip shortage partially caused by Huawei’s ban by the US
According to Xie Ruifeng who is a senior analyst with semiconductor research firm ICWise, “this created a spillover effect.”
“If it was only Huawei stockpiling orders, the disruption would not be so big, but other smartphone makers including Xiaomi, Oppo, and Vivo all started to binge buy chips to grab Huawei’s market share, and this created huge demand.”
Even Eric Xu Zhijun, Huawei’s rotating chairman, says the US sanctions are to blame. When Huawei made these huge purchases big-name foundries rushed to accommodate Huawei’s orders. This all was happening back in Q3 of 2020.
TSMC and SMIC (Semiconductor Manufacturing International Corporation) rushed to get these orders together before September 15. This was the date that they had to stop supplying Huawei. In short, the chip ecosystem was thrown into flux. One company gobbled up a large amount of supply leading others to get their fill where they could.
However, it isn’t just smartphone giants that caused the chip shortage. The pandemic hit the automotive, aviation, and travel industries hard as well. Thanks to this, these industries cut back production and procurement of new parts. Including chips.
“[Auto] customers continued to reduce their demand throughout the third quarter 2020. We only began to see a sudden recovery in the fourth quarter of 2020.” -C.C. Wei CEO of TSMCAdvertisement
Once these automakers began recovering, they realized they did not have the supply of chips to fit their needs. You see automakers do not buy directly from TSMC or other chipmakers. Instead, there are middlemen they get their supply from.
All in all, there are many different reasons why the world has a global chip shortage. There are many players around the world working to solve the shortage. But, it looks like the world will have to stomach one more year of the shortage before things get back to normal.