Although it might feel like we’ve been through the worst that Covid-19 could throw at us, and we’re making steady progress with vaccination rollout programs, we are still far from an optimal situation despite the significant strides we’ve made to reach this point. While some countries are experiencing economic rebounds, heartbreaking news such as India’s situation going from bad to worse and Brazil’s death toll surpassing 400,000 tell a very different story about the global context.
Furthermore, it’s still a long stretch ahead before we can begin to witness any level of unprecedented economic recovery because all modern-day gadgets, equipment, and consumer electronics rely on semiconductors — the one thing we are currently experiencing an extreme shortage of supply. And while these chips may be small in size, the sheer magnitude of their impact is felt across different markets as industry leaders cannot meet rising demands and are forced to struggle with heavily strained supply chains.
What Caused The Shortage In The First Place?
It is without a doubt that the one culprit we can blame is the global pandemic. Still, it’s equally important that we acknowledge the driving factors that Covid-19 set in motion to cause such a collapse on a once healthy supply and demand model. Notably, all evidence points to three associative problems, namely, (1)gaps in the semiconductor supply chains, a (2)significant increase in demand, and (3)the outsourcing of chip manufacturing to foundries.
- Gaps In The Semiconductor Supply Chains: Health and safety hazards forced workplaces, factories, and warehouses alike to close their operations during the initial outbreak and severely limited the workload capacity they could handle. Consequently, global trade and commerce also slowed down to limit the spread of the virus, which pushed many orders back, schedules in disarray, and shipments still on hold. As a result, these revealed severe gaps in the semiconductor supply chains that could not meet demand.
- Significant Increase In Demand: Apart from a logistics perspective, strict lockdown measures significantly increased the demand for consumer electronics from laptops to smartphones as people migrated into a remote workspace. And while this may be viewed as a positive for the tech industry, the surge in demand has yet to slow down, leaving tech companies with close to nothing in their available inventory.
- Manufacturing Is Outsourced To Foundries: Last but not least, most businesses strictly rely on outsourcing the manufacturing process of their products to foundries in China, and while there are some factories present here, the difference is staggering. As a result, even if industry leaders were to invest in more facilities to increase capacity, this would be a long-term solution incapable of solving the current overload.
Graphics Card Prices Are Out Of Hand
An excellent example of the semiconductor shortage heavily impacting the capacity of an industry is the GPU market, wherein current Graphics Card prices are out of hand, and nobody can get these components at the suggested retail price. Over the past year, the PC tech space has been graced with major advances in GPU performance. Still, due to strict lockdown measures that drove the demand for gaming and even cryptocurrency mining, there are none left available except for the absurd scalpers charging inflated prices. Consequently, the price dilemma has also trickled onto the used marketplace forcing customers to pay unfair price tags.
Worsening Situation For Car Makers
While most people’s conceptions about cars are nothing but the engine, all newer models require semiconductors. Because consumer electronics are heavily favored due to the greater profit margin, we are witnessing a worsening situation for carmakers. Since these brands expect a slower recovery on the chip shortage, many of them were forced to halt the production of certain vehicles and even shut down factories to stay financially healthy. Of course, current drivers would have nothing to worry about because they can still avail services like Ford maintenance, Porsche repair, or visit the local auto shop. Still, the spike in demand for newer cars and buyers is a problem with no current solution.
Will This Shortage Be Solved Anytime Soon?
There’s no denying that short-term fixes will help alleviate some of the stress placed on the semiconductor industry. Still, as CEO of Intel Patrick Gelsinger pointed out, we’ll need at least a couple more years before we can have factories capable of meeting current demand. Yes, it doesn’t hurt to be a bit more optimistic, but current evidence points to many bearish signals and a delayed rebound for semiconductor supplies.
Verdict: It’s Not Looking Too Bright
In conclusion, the semiconductor shortage affects global markets, and none are safe due to their vast application. And anyone looking to get their hands on any sort of consumer electronics should expect to wait much longer before prices stabilize and supply catches up.
