Over the last year, the global economy has taken quite a hit. Businesses rely on the people who forecast markets to plan production and strategy, but nobody saw the pandemic coming. Shutdowns, job losses, and a transition to work and school from home have all impacted manufacturing and consumer activity. One outcome you may have heard about is a shortage of computer chips. Both the materials used in chip assembly and packaging plus the raw chips themselves are lagging behind demand. This crisis has been dubbed “chipaggedon” by some as a reference to the lack of computer chips, also called semiconductors or integrated circuits. Without them, things like computers and consumer electronics can’t be manufactured. Really, just about every electrical product needs computer chips to run.
Who Produces the Chips?
The world’s biggest semiconductor manufacturers are Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung. Thirty years ago, the U.S. and Europe produced 75% of the world’s semiconductors, but that market share has shrunk to just 25%. Japan, South Korea, Taiwan, and China moved in to fill the gap. In the next decade, China is on pace to take over as the largest chip producer on the planet. How did this happen? A lack of investment in North America and a surge of investment in in Asia. In Taiwan, South Korea, Singapore, and China, the governments pump tens of billions of dollars into their country’s semiconductor industry every year. By contrast, 88% of the semiconductor chips used by U.S. industries are made outside the country.
Why is There a Shortage?
The computer chip shortage wasn’t caused by any one thing, but rather a confluence of circumstances. COVID-19 and its fallout took everyone by surprise, including the semiconductor industry. The forecast for 2020 didn’t include a whole bunch of people working from home and looking for ways to entertain themselves in isolation. Even when the forecast was adjusted to try and accommodate the pandemic, the prediction was still inaccurate. Interrupted supply chains and a surge in demand for home electronics followed by skyrocketing car sales (after and initial slump) are just some of the factors that have led to a computer chip shortage. Oh, and 5G. Phones that are 5G compatible use more computer chips than previous models. The result of all this is an imbalance of supply and demand. Semiconductor manufacturers hadn’t planned the need to make so many chips, so the demand has exceeded the supply and led to a shortage.
How Will the Computer Chip Shortage Affect Me?
How the computer chip shortage affects you depends on how you spend your work and leisure time. From a consumer perspective, products may get more expensive and stay at that higher price point longer. The video game console or new smart phone you were hoping to buy could be harder to find and you may have to wait longer to get your hands on them. The auto industry has been especially hard hit since computer chips are a major component of car manufacturing. Those looking to buy a new car may have to wait for their model to become available because auto plants can’t finish manufacturing the car without the necessary chips. And this delay extends to those working in the auto industry. In Ingersoll, Ontario, a slew of auto workers were temporarily laid off last month due to a shortage of computer chips.
So how are businesses reacting? Back to supply and demand. Some companies tried to buy up as many computer chips as possible to combat the shortage. Semiconductor manufacturers have raised prices. As a video production company, we certainly understand the reliance on electronic equipment and computer chips. From video cameras to edit suites, our services depend on these components. Luckily for us, the current impact is being felt only in the disappointment of having to wait for a PS5.
If you’re wondering why the computer chip shortage can’t just be addressed through increased production, there’s a reason. Chip manufacturing needs a specialized factories with highly controlled environments. These manufacturing spaces can cost billions of dollars to build and take two years to finish. Experts are predicting that the computer chip shortage won’t be controlled until mid-summer. It’s just another way we all have to exercise patience in 2021.