Multiple industries and millions of consumers are feeling the negative effects of the semiconductor chip shortage. Sadly, it doesn’t seem like this problem is going away any time soon.
Indeed, Marvell CEO Matt Murphy says that we can expect this issue to continue well into 2022 and perhaps beyond. But what exactly caused this chip shortage?
And how is the semiconductor industry responding to it? If you want to learn the answer to these questions and more, then you’re in the right place.
In this article, we’ll be diving into both the issue itself and potential solutions further down the line. Let’s get started!
Why is There a Global Chip Shortage?
There are multiple reasons why the world is currently experiencing a chip shortage. However, one of the biggest reasons is the COVID-19 pandemic. When quarantine started millions of people found themselves stuck at home.
So, to cope with the boredom consumers began purchasing all numbers of sophisticated electronics. Sadly, things like laptops, PCs, televisions, video games, smartphones, tablets, and security systems all have one thing in common: they need a semiconductor chip to operate properly.
The increased sale of these items placed a huge demand on the industry. This caught the supply chain management professionals completely by surprise. Sadly, there was no way that they could produce enough chips to meet the demand in time.
So, the pandemic and the poor supply chain planning are the main culprits of the chip shortage. However, they aren’t the only ones to blame. The trade sanctions placed on China also played a big role.
China is the number one producer of semiconductor chips. And, before the pandemic, the United States placed sanctions that disrupted trade between the two countries. It also hasn’t helped that there was a huge fire in one of Japan’s major chip factories and a power crisis at a major Texas plant.
Which Industries Are Being Hit the Hardest?
You might think that the electronics industry, like video games, computers and smartphones were hit the hardest by the chip shortages. However, you’d be wrong. These industries have indeed suffered from the shortage.
But, the industry that is currently suffering from the chip shortage the most is the automotive industry. Why is this? Well, these days most new cars are made almost entirely of computers.
As such, they require a huge amount of chips to keep them operational. Despite this reliance on them, the automotive industry is at the back of the line when it comes to the priority of who gets what chip.
Instead, the semiconductor industry prioritizes things like cloud infrastructure, PCs, and smartphones. And, even if they did move up in terms of priority, the nature of the supply chain means that it would take months before it even reaches the end of the line.
As such, we can expect the automotive industry to be feeling the consequences of this for years to come. That is unless something changes.
What Is the Semiconductor Industry Doing to Address the Chip Shortage?
As you can see, the chip shortage is affecting both consumers and industries alike. The good news is that experts in the semiconductor industry are responding to this shortage with both practical and innovative solutions.
In this section we’ll briefly go into some changes you can expect in the future. And, ideally, these solutions will eventually cause the shortage to end.
Increased Production
Part of the problem with the semiconductor chip shortage is that there simply aren’t enough factories to meet the current demand. So, the first solution is also the most obvious one: build more factories and increase production.
The only problem is that the process of constructing these factories is incredibly time-consuming. Not only that, but in many cases, it can be incredibly expensive too. ARS Technica estimates that just one chip building factory costs between $5 and $10 billion.
As such, not many investors are willing to take a risk on such a costly project that likely won’t bear fruit for many years. Indeed, there’s no guarantee that demand for chips will even be that high in the future.
So, that’s what makes the increased production solution a little more complicated than saying, “We’ll just build more factories”. But, some are already underway which should alleviate some of the supply-chain bottlenecks.
When can we expect some relief from chip shortages? Optimistic projections say during the second quarter of 2022. However, more realistically, we won’t start to see major relief until 2023 or even 2024.
Trade-In Programs
Many companies’ solutions are to expand the production of semiconductor chips. But, what about all of the chips from old electronic devices? By recycling the chips from old electronics manufacturers can not only save money but also save the planet.
By recycling the material that makes up the chip manufacturers can put less strain on the environment. This is because mining the raw material that makes up the chips creates a lot of pollution, displaces communities, and uses up finite resources.
Luckily, many manufacturers have taken note of this. For example, the Intel Evo platform offers a trade-in program on your old laptops, computers, and other electronics. That way, you get a modern device and the company gets access to more chips.
Improved Supply Chain Planning
Everyone remembers the early days of the pandemic when supplies for toilet paper, flour, and other household essentials ran dry. This instance helped expose a valuable truth to the semiconductor industry: disruption is always inevitable.
As such, those responsible for the supply chains in their country will need to step up their planning abilities. But, how can they do this? One way is through transparency.
All too often, planners try to hide the fact that problems are occurring within the chain. Sometimes this is so that they don’t get into trouble with higher-ups. However, more commonly, it’s so that stock prices for the company don’t go down.
Sadly, this wastes valuable time that could be spent implementing changes to accommodate the disruptions. As such, the sooner that the supply chain planners know about disruptions the more likely they’ll be able to prevent them.
In addition to this, the planners should frequently prepare “worst-case” scenarios to run. That way, they have a plan at the ready in the likely event that one of these scenarios happens.
Changing Models
Semiconductor sales are one-time transactions. After all, you don’t pay a subscription service to continue using your processor. However, many experts believe that this is a huge lost opportunity.
The reality is that the semiconductor industry could benefit from a subscription-based model. So how would it work? Well, the more data that flows through your semiconductor chip, the more expensive your bill is.
Indeed, this changing model wouldn’t be super ideal for consumers. They would end up spending a little more on chips. However, many people that don’t use their chips to their full potential could benefit from it.
And of course, the revenue made would help the chip industry open up more factories. This, in turn, would decrease demand and make the entire endeavor a little more affordable.
Expanding to New Frontiers
In the past chip sales were mainly B2B transactions. That means that their use was restricted to hardware. However, it doesn’t need to be this way.
If semiconductor industries open themselves up to new products and ideas, then they could generate excitement at the consumer level (not just the corporate level). This, in turn, could revitalize the industry.
So, what are some new frontiers that the semiconductor companies could expand into? IoT, artificial intelligence, and edge computing are just some of the areas that these companies could expand into.
Sadly, most companies haven’t expanded to this area yet. However, market reach through investors and consumers is one of the best ways to revitalize the industry.
Want More Content? Keep Reading
We hope this article helped you learn more about the crisis that’s currently going on in the semiconductor industry. While the COVID-19 pandemic may have been a catalyst for the problem, the reality is that chip shortages have long been a problem for the industry.
However, whether this issue turns into a long-term or a short-term problem depends a lot on the various industries. As we saw in the last section, there are some reasons to be optimistic about the future of semiconductor chips.
However, it will need to involve a lot of effort on the part of the makers if it has any hope of getting better. Specifically, it needs new innovations, better planning, and a change in the pricing models.
Only when these changes come can we expect lasting change. Did you enjoy this article? If the answer is yes, then you’re in the right place. Keep exploring to find more topics that you’re sure to love.
