State Of Chip Shortage In 2021: A Quick Revisit

The global chip shortage of 2020–2021 is affecting over 169 sectors and consumer lines, including cars, graphics cards, video game consoles, and so on.

The snowball effect of the COVID-19 pandemic happens to be the biggest reason amongst many, creating the global chip problem. Other possible causes include the China–United States trade war and Taiwan’s 2021 drought. In addition, automobile manufacturers worldwide anticipated a decline in demand at the start of the pandemic. As a result, these companies chose to order fewer semiconductor chips to reduce their inventory costs during the shutdown period. 

On the other side, people began upgrading their computers, laptops, phones, and other electronic equipment amid the pandemic-induced lockdown. During this time, Sony introduced their brand-new platform, the PlayStation 5, to rave reviews and millions of pre-orders. Similarly, demand for graphics cards increased due to their gaming use, graphics production, and crypto mining. While demand for semiconductor chips decreased temporarily in the vehicle industry, it witnessed a rise in all other industries. 

Moreover, the chip shortage created difficulties for automotive manufacturers when they could not resume normal manufacturing due to a sudden shortage of semiconductor chips. Automobile manufacturers, in particular, cancelled orders, while chip manufacturers shifted their focus to consumer products in an attempt to meet the pandemic’s growing demand. After retooling their operations to produce chips for consumer items rather than automobiles, a shortage of automobile chips ensued.

Why aren’t there more semiconductor manufacturers?

Semiconductor manufacturers can supply any product’s increased demand if manufacturing capacity is sufficient. However, manufacturing semiconductor chips is a difficult, time-consuming, and expensive process that barriers players. Currently, the semiconductor industry is dominated by three manufacturers: Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung. Supply problems were caused by a small number of manufacturers and an unexpected surge in demand. In addition, due to the shortage of graphics cards, manufacturers increased their pricing, which increased the prices of PCs and laptops.

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What is being done to ease the global chip shortage?

With demand for semiconductors expected to grow as more industries embrace digital transformation, chip manufacturers and governments collaborate to expand supply networks’ capacity. For example, TSMC is investing $100 million in extra capacity over the next three years, while Samsung, SK Hynix, and the South Korean government have committed to investing $451 billion in chip manufacturing capacity and incentives.

When will the global chip shortage end?

“Although the supply of semiconductors was supposed to recover by the end of 2021, analysts believe that the worldwide chip deficit could stretch throughout the next year and maybe into 2023. The shortage is because current capacity expenditures will take fruit,” said Malcolm Penn, CEO of industry researcher Future Horizons.

Even if the current global chip shortfall is resolved, it is possible that other supply issues will arise as the demand for electronics continues to grow. “The capacity that chip makers are building today will suffice for the next few years, and as these things come online, there will be an excess of capacity,” Gartner analyst Alan Priestley explained.

Intel CEO Pat Gelsinger stated that he anticipates the chip shortage to worsen in the second half of 2021 and that it will take a year or two for supplies to recover to normal. On the other hand, Nvidia CEO Jensen Huang stated that he anticipates the shortfall to last far into 2022, while AMD CEO Lisa Su stated that the deficit will improve in the second half of 2022. However, supply would remain tight until then. IBM CEO Arvind Krishna stated that “More than likely, the chip shortage will continue until 2023 or 2024 at the earliest.”