Why Is The Tech Industry Experiencing A Chips Shortage?

The technology industry is at a crossroads.

Computer chips, also known as semiconductors, are used in millions of items today, including cars, washing machines, cellphones, and more.

And there aren’t enough of them to match industry demand right now. As a result, a lot of popular products are out of stock.

Purchasing a PS5 game console has become nearly impossible. Production at Toyota, Ford, and Volvo plants has had to be slowed or temporarily halted. Smartphone manufacturers are also feeling the strain, with Apple predicting that the scarcity will hurt iPhone sales.

Even companies that aren’t directly related to computer chips, such as CSSI International, a US-based manufacturer of dog grooming machines, are feeling the effects.

These issues have already been noticed by certain customers. Because new vehicles, which are sometimes packed with thousands of tiny chips, are in short supply, used-car sales are on the rise.

Kris Halpin, a North Warwickshire-based musician, is one of many who has been disappointed. Mr. Halpin suffers from cerebral palsy and uses the Motability program to lease an automobile.

His current lease expires in October, and he must replace his automobile before then, according to the scheme’s terms. However, his local dealership has informed him that the automobile he bought would not be delivered until January of the following year.

Mr. Halpin, who uses a wheelchair, says, “As a disabled person, I am really, really reliant on my car.” “I simply couldn’t travel beyond my drive without my automobile where I reside.”

Thankfully, Mr. Halpin reports that Motability has agreed to extend his existing car’s lease and insurance until the new one arrives.

It’s probable that even more products will be affected by the shortfall in the following months, particularly around Christmas.

So, what exactly is going on here?

In current products, the chips in short supply serve a variety of activities, and there are sometimes multiple of them in a single device.

Piotr Esden-Tempski is the creator and proprietor of 1bitsquared, an electrical hardware company based in the United States. Several thousand electrical interface boards, which allow students and makers to link numerous appliances to their computers, are on his books.

However, Mr. Esden-suppliers Tempski’s claim that some of the semiconductor-containing components he needs will be unavailable for at least a year.

“You can’t just put it together and leave one thing out; it won’t work,” he explains.

This is a scenario that has been building for years, not months.


According to Koray Köse, a Gartner analyst, the emergence of 5G, which raised demand, and the US decision to prohibit the sale of semiconductors and other technology to Huawei were among the challenges affecting the chip sector prior to the epidemic. The Chinese business soon overwhelmed chip producers outside of the United States with orders.

Manufacturing challenges that are less visible have also impacted the availability of key components.

Using 200mm or 300mm wafers, for example, is one of the two basic techniques to chip fabrication right today. The diameter of the circular silicon wafer that is broken into many small chips is referred to as this.

Larger wafers are more expensive and are typically utilized for more sophisticated electronics.

However, due to a surge in demand for lower-cost chips, which are increasingly being incorporated in a wider range of consumer products, the older 200mm technology is in higher demand than ever.

In February 2020, industry news site Semiconductor Engineering warned of a chip shortfall, owing in part to a scarcity of 200mm production equipment.

Early indicators of shifting demand led to stockpiling and advance ordering of chips by certain computer corporations as the pandemic progressed, leaving others scrambling to obtain the components.

Laptops, tablets, and webcams were required for people working from home, and semiconductor companies were forced to close during the lockdown.

Consumers have had difficulty purchasing the devices they want at times, however, manufacturers have been able to keep up with demand in the past.

The pandemic, however, was not the main cause of the chip scarcity, according to Mr. Köse: “That was probably simply the last drop in the bucket.”

Unfortunate events have recently aggravated the problem. A severe winter storm in Texas forced the closure of semiconductor plants, and a fire at a plant in Japan prompted similar delays.

Logistical issues are exacerbating the problem. For many years, according to Oliver Chapman, CEO of OCI, a global supply chain partner, the cost of shipping was not a major problem for many IT companies because their products are relatively tiny, and suppliers could fit many of them into a single 40ft container.

However, due to abrupt fluctuations in demand during the pandemic, the cost of transporting cargo containers throughout the world has risen dramatically. It is accompanied by an increase in air freight prices as well as a lack of lorry drivers in Europe.

According to George Griffiths, editor of global container markets at S&P Global Platts, sending a single 40ft container from Asia to Europe costs $17,000 (£12,480).

When compared to a year ago, when it cost roughly $1,500 (£1,101), the price has increased by more than tenfold.

Chip producers are adding capacity in response to continuous demand, but this will take time, according to Mr. Köse, not least because semiconductor facilities cost billions of dollars to construct. “That isn’t going to be fixed by Christmas, and I have my doubts that it will be solved by Black Friday [November 2022],” he continues.

The CEOs of the tech behemoths appear to be very aware of this. Both Intel and IBM’s CEOs have lately stated that the chip scarcity might continue for two years.

“It will take numerous years to achieve… a better equilibrium,” says Seda Memik, a Northwestern University professor of electrical and computer engineering and computer science. She further claims that chip demand has been increasing at such a rapid rate that scarcity was “inevitable” at some point.

“It’s incredibly expensive and demands a well-trained crew,” she says of establishing new chip facilities rapidly. It’s a potential stumbling block for proponents of “reshoring,” or moving chip manufacture to a wider range of countries, including those in the West, to relieve pressure on global supply chains.

Mr. Chapman isn’t certain the market is up for business. He claims that chip makers in Asia, such as those in Taiwan, China, and South Korea, are already competing to meet demand and will continue to do so in the future.

Consumers are unlikely to notice price increases or major shortages of tech devices this Christmas, according to Mr. Köse. Certain in-demand items, such as games consoles, may become difficult to obtain, requiring users to wait several months for the item they desire. He does not, however, anticipate lengthy delays.

The basic line is that the pandemic has exacerbated an already precarious situation for chip makers – we’re in the midst of a technological revolution, and supply can’t keep up – and it won’t be resolved overnight. It implies that for months to come, all kinds of individuals, including those looking for a new automobile like Mr. Halpin, may face delays and disappointment.

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