The semiconductor industry lives at the cutting edge of technological progress. So why do we face computer chip shortage?
Nearly two years after pandemic-caused disruptions, a severe computer chip shortage — the disruption in production of the components at the heart of smartphones, laptops, and a plethora of other products — continues to affect manufacturers worldwide.
Automobile manufacturers have been forced to halt production in recent months due to a lack of vehicles. The computer chip shortage has impacted industries ranging from gaming consoles to networking equipment to medical devices. Apple blamed chip scarcity for stifling its financial results in October, and Intel predicted that the drought would likely last until 2023.
In short, the semiconductor supply chain has been stretched in new and difficult-to-resolve ways. Demand is outpacing chipmakers’ ability to respond, particularly for basic-yet-common components that are subject to the kind of large fluctuations in demand that make investments risky.
“It’s incredible that it’s taken so long for the supply chain to recover after the global economy came to a halt during Covid,” says Brian Matas, vice president of market research at IC Insights, a semiconductor analyst firm.
For one thing, the sheer magnitude of demand has been astounding. The chip industry was already anticipating an upswing in 2020, as Covid began upending business as usual. According to the Semiconductor Industry Association, global chip sales fell 12% in 2019. However, the group predicted in December 2019 that global sales would grow 5.9 percent in 2020 and 6.3 percent in 2021.
In fact, according to the most recent data, sales increased by 29.7 percent between August 2020 and August 2021. Cloud computing and 5G technologies, as well as the increasing use of chips in a variety of products ranging from automobiles to home appliances, are driving demand.
Simultaneously, US sanctions imposed on Chinese companies such as Huawei, a leading manufacturer of smartphones and networking equipment, prompted some Chinese firms to begin stockpiling as much supply as possible.
According to David Yoffie, a Harvard Business School professor who previously served on Intel’s board, the surge in demand for high-tech products caused by working from home, and a shift to ecommerce has only continued, catching many by surprise.
Yoffie thinks that chipmakers didn’t realise the extent of the sustained demand until about a year ago, and now it is too late for a change. Building and outfitting new chip-making factories costs billions of dollars and takes years. “A new factory takes about two years to build,” Yoffie says. “And factories have grown much larger, much more expensive, and much more complicated.”
This week, Sony and Taiwan Semiconductor Manufacturing Company, the world’s largest contract chip maker, announced a $7 billion investment in a factory capable of producing older components, but it won’t begin producing chips until the end of 2024. Intel is also investing in several cutting-edge new fabs, which will not be operational until 2024.
According to recent reports, Apple supplier Foxconn predicts that a global computer chip shortage will last until the second half of 2022, and that its fourth-quarter revenue for electronics, including smartphones, will fall by more than 15%.
The computer chip shortage appears to be here to stay.