Using microprocessor-based technology is now a way of life for a majority of people, and with that a massive demand is created for these components. Unfortunately, demand—as well as the COVID-19 pandemic—has caused difficulties for many organizations’ supply chains, including microprocessors. Today, we will go through the microchip shortage, how it affects consumers and when experts project that it will subside.
First, What is a “Chip”?
When people talk about the “chip” shortage, what they mean is that they can’t acquire microchips fast enough to keep up with demand for their products. When they talk about microchips, what they mean is a semiconductor or integrated circuit usually written into a conducting material (typically silicon). These chips make up most of the brains of your modern computing devices, as well as cars, electronics, and millions of other products.
Understand that while these semiconductors fuel a lot of the computers that people use, they also are a major component used in every computerized system. You can find scores of them in your living room alone. The modern world depends on these little semiconductors, so a shortage wreaks havoc with the economy.
Why Don’t They Just Boost Production?
When there is a massive demand for certain products, companies will alter their production in response, but unlike many other products, microchips have to be created in highly-controlled environments. Things such as variances in temperature, the presence of static electricity, or even a speck of dust can completely ruin fabricated semiconductors. Since these sterile conditions cost billions of dollars to set up, it’s not as easy as hiring a few new workers and opening new manufacturing plants. As it is, these chip manufacturing “fabs” are running at full capacity; and, even if manufacturers do spend an enormous amount of capital to build new chips, they take months and years to set up and run.
There is more to the chip shortage than just not enough manufacturing power. Global supply chains have been all over the place since the beginning of the COVID-19 pandemic. Some industries made decisions with the idea that consumer spending would be stymied by the pandemic. This, of course, turned out to be a non-issue, and it had changed the way businesses operate. As they build up their online presence, consumers’ demand for semiconductors increases. Ironically, the new digital economy is actually working against them in this way.
Of course, there were other considerations that have led to a worldwide shortage of microchips. The innovation of 5G-capable smartphones didn’t help matters much either as they use many more chips than previous generations of handsets. As 5G is integrated more and more, more chips are needed. Other factors include political reasons as one of the largest chip manufacturers, SMIC, is partially owned by the Chinese government, and was basically blacklisted by the U.S. government because of that relationship. Also, the growing cryptocurrency market, fueled by warehouses of computers that mine for the thousands of different cryptocurrencies around the clock, chew through components at an alarming rate. The more that people utilize cryptocurrencies, the more chips are needed.
So, What is the Result?
Well the first result is the lack of chips available. This does two things. Firstly, it limits supply which raises prices on available chips. Products from cars to smartphones to personal computers have seen their prices jump substantially in a very short period of time. Unfortunately, for consumers (you and me) this chip shortage isn’t going to go away quickly. At the end of 2020, reports said that the shortage would last until at least 2022, but today it seems like we are years away from seeing the end of the shortage. This will continue to push prices for digital goods higher and higher, even as demand grows for these products. It should be interesting how much the lack of semiconductor supply will slow down innovation in mobile and IoT, two markets that have shown to have a lot of promise.
At S3 Technologies, Inc., we work with some of the best technology vendors in the industry to get our clients the computing solutions they need to run their business efficiently. If you would like to talk about the chip shortage and the effect it has on your business, reach out to one of our IT professionals at (505) 242-5683 today.