In 2020, the country was challenged by product shortages affecting everything from toilet paper to hand sanitiser. Now 2021 is presenting a new obstacle: a low supply of the silicon chips used in computers, smartphones, gaming consoles, and other electronics. After reading some of the coverage of these shortages, you might be concerned that, in a few months, you won\u2019t be able to buy certain devices at all. That\u2019s not quite the case, but the situation may require a little flexibility and patience.<\/p>\n\n\n\n
Semiconductors are materials like silicon that can conduct electricity. These are also known as chips, semis, and can be found in electronic devices such as computers, smartphones, appliances, gaming hardware and medical equipment. These devices find widespread use in almost all industries, especially in the automobile industry. Over the years, chip designers have managed to squeeze more and more circuits into smaller spaces, making computers exponentially faster and cheaper. But the tiny size and complex design laid the groundwork for the current shortage.<\/p>\n\n\n\n
This shortage has been triggered by a dramatic spike in demand, caused by the pandemic. Having declined between 2018 and 2019, global semiconductor sales revenue grew 6.5% in 2020, to $439bn, according to figures from the World Semiconductor Trade Statistics organisation. It is predicted to grow again in 2021, to $469bn. Given the huge numbers involved, this increase has inevitably put supply chains under pressure. The spike in demand is exacerbated by the industry\u2019s reliance on a small group of foundries, particularly Taiwan\u2019s TSMC and South Korea-based Samsung.<\/p>\n\n\n\n
The increased demand follows the growing use of digital technology under lockdown. Demand for PCs rose as companies around the world pivoted to remote working and schools switched to online learning in the wake of the Covid-19 pandemic, while the growth of cloud services meant a higher number of server chips was also required. \u201cThe pandemic shifted electronics demand to consumer electronics and hyper-scale servers, and 5G came around the corner at the same time,\u201d explains Gaurav Gupta, vice-president for semiconductors and electronics at Gartner.<\/p>\n\n\n\n
The reason why carmakers are especially challenged is that cars sales plummeted during the lockdown, meaning manufacturers cut their usual semiconductor orders. As a result, Gupta says automotive companies are being deprioritised by over-stretched chip foundries as demand for their products picks up. \u201cIndustrial and auto sector demand went down and they cut down their chip orders,\u201d he explains. \u201cNow they can\u2019t get back in the queue. The foundries business model is based on profit margin and volume; automotive electronics is a very small fraction [of their business], so now when the demand has picked up and the automotive guys need chips they are not seen as a priority.\u201d<\/p>\n\n\n\n
Tensions between the US and China have also played a role in the shortage, Gupta says. \u201cThe trade war led to Huawei and its competitors piling up inventory in Q2 and Q3 of 2020 leading to high foundry utilisation,\u201d he says. \u201cAdditionally, sanctions on [Chinese chip foundry] SMIC led their customers to look for alternative options, further stressing foundry capacity in Taiwan.\u201d<\/p>\n\n\n\n
With the demand of consumer electronics rising Neil Campling, an analyst at Mirabaud Securities told\u00a0The Guardian<\/em>,\u201cthis gives companies the power to raise prices and pass on higher costs\u201d. Lenovo Group also said that its profit margins took a hit after the global chip shortage. Demand for laptops has increased because of purchases by people working at home, which has also led to the doubling of stock prices since August.<\/p>\n\n\n\n US President Joe Biden has intervened to resolve this issue and has sought $37 billion in funding for legislation to supercharge chip manufacturing in the country. Meanwhile, semiconductor industries have also ramped up their production process but have warned that the increase won\u2019t be rampant. Intel has recently announced to invest $20 billion in two new factories in Arizona. However, this does not mean that the factories can meet the current demand, experts say that the scarcity will last for more than a year from now at least.<\/p>\n\n\n\n If the global chip shortage continues to increase, this means that you won\u2019t be able to buy popular products such as laptops, iPhone devices, PlayStation consoles and cars too. Recently, Samsung decided to shut down its factories amid the global crisis. This could mean that prices of tech gadgets could go even higher and will be heavy on your pockets.<\/p>\n\n\n\n This will affect small and medium-sized\u00a0businesses (SMBs) in many ways, especially\u2014but not exclusively\u2014when it comes to IT. (For example, if the business or organization exists in a manufacturing vertical dealing with electronics, IT may not be the primary concern!) Boiled down, lower supply equals higher demand. Higher demand equals higher costs. Companies may have to look outside their normal standards to find similar products for workstations or peripherals, for example. Hardware orders may take (sometimes significantly) longer to be fulfilled by vendors, and IT projects may be delayed. This highlights a need for proper planning and perhaps some additional padding in IT budgets specific to integration projects. A company\u2019s decision-makers may need to weigh the real cost of moving forward now and paying a little more versus the opportunity cost of waiting.<\/p>\n\n\n\nWhen Will The Shortage be Resolved?<\/h3>\n\n\n\n
How does this affect your business?<\/h3>\n\n\n\n