What the Chip Shortage Really Means

The global semiconductor chip shortage impacts nearly every industry although we mostly hear about how it has impacted the automotive world.

Nearly every business is impacted in some way by the fact the chips have been in short supply and high demand for the past two years. It seems odd that an item that costs about $10 each can cripple industries and slow down the world, but it has. The auto industry isn’t the only one impacted by the lack of chips available. Unfortunately, the only solution to this problem is patience. Without that, this problem will persist for years to come and may never end.

Wait, We Thought Only the Auto Industry was Impacted

Sorry, but you would be wrong if you think this way. These small chips run everything in our world that has any type of computing capabilities. That fact alone makes the shortage of them a bit scary. What happens when a company has a server that suddenly won’t work? Will they have to wait six months to a year for the right parts to fix it? How about the independent worker using their phone for everything? Will they find a suitable replacement in time? These are real concerns with a shortage of this particular product.

What Caused the Chip Shortage?

The immediate cause of the shortage of semiconductors was COVID-19. This virus hit the globe and shut everything down. Unfortunately, the coronavirus hit most of Asia first, which is where the vast majority of the global chips come from. With plants stopped for months, no new chips were shipped out because none were being made. Although many facilities have reopened and are running at full capacity, these chips take up to three months to make, which requires patience. Additionally, the complexity of a factory that makes these chips means they can’t just pop up and start making them.

New Plants are Being Built, But Not Fast Enough

We already know new facilities are being built to make these semiconductors. There’s no way the world is going to go back to a time without connectivity, the internet, and computing software. The demand for these chips remains high and they will continue to stay there for a long time. The new facilities being built should be operational before the end of the year but will need time to fully ramp up to the levels needed to produce these chips at a fast enough rate.

The Loss of the Three Facilities Added to the Problem

The chip shortage wasn’t bad enough already and in a span of only a few weeks three facilities shut down, two of which required massive repairs to return to production processes. These two plants faced natural disasters, requiring them to remain closed for several months. The third plant that lost capacity did so over a labor dispute, but it’s back up and running again. These issues only added to the troubles in the technology sector with the number of chips being produced. The demand for these chips is much higher than the supply, causing problems around the globe.

The Auto Industry was its Own Worst Enemy

When the entire world shut down and everyone who could be ordered to stay home, automakers panicked. You can’t blame them; they were staring a second coming of the 2008 global economic crisis right in the face. Without knowing whether or not dealers would find a way to sell cars in a contactless environment, automakers canceled orders with suppliers during the forced shutdown of their plants. Unfortunately, when it was time to place orders again, they went to the back of the line.

Where did all the Chips the Automakers Canceled Go?

If you’re forced to stay home for a few weeks or months, what would you do? Most likely, you would find a way to entertain yourself. One of the best ways to do this is with a gaming console. These consoles have gotten so advanced they use the same chips as many of the cars we drive. The spike in demand for gaming consoles allows the chips to shift to these companies so they could ship out more products. Unfortunately, when the auto industry needed to order these chips, there weren’t any to be had.

Gamers Weren’t the Only Ones Ordering Chips

The education sector also needed vast supplies of these chips but needed them in the computers they ordered. Students were forced to learn from home, parents were forced to teach, and teachers had to learn remote technology in a hurry. Some families, without computers or internet, were given support by local school systems for these needs to allow students to continue with their education. This meant vast numbers of laptop computers were issued out during the shutdown, and computer manufacturers needed to scramble to meet the demands of educators around the world.

The Auto Industry was Left in a Lerch

With the chip shortage and what chips there were going to other industries, automakers didn’t know what to do. They were in the back of the line and had to wait three to six months for some chips. While some automakers had a cache of chips in supply they could use to build some vehicles, they had to do this in a judicious manner. This meant the top sellers and higher-margin vehicles were the first ones completed. Many brands build complete cars without the chips and set them on parking lots near assembly plants awaiting the chips. Other automakers cut out some of the features they offered previously to cut down on the number of chips needed for a vehicle.

What does this Shortage Mean for Your Business?

If you’re operating a business and planned to upgrade your computer systems this year, you might want to place your order now. You’re going to face longer lead times for the items you want for your office. If you aren’t ready to order new computing equipment, the shortage might be over when you do need to upgrade your equipment. New facilities are being built to combat the chip shortage.  This should bring things back to the normal we knew before the pandemic.