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Everything You Need to Know About the Chip Shortage

Computer chips are used as a power source for a vast majority of products across the world that incorporate any type of technology in their design. If it has the ability to connect, transport, or entertain us, then there is a strong chance it uses a chip to do so. These chips are often referred to as semiconductors or microchips and they act as the mind behind our cell phones, televisions, GPS devices, ATMs, check-in kiosks, and just about anything else you can think of. They are even used in products that were originally deemed tech-free, such as shoes, fishing equipment, and even gravestones. The market for this nano-sized chip is enormous and is continuing to grow at an alarming rate. Microchips account for around $300 billion a year in sales across the globe, and this number will continue to grow as more applications are realized for all types of products used in our everyday lives.

While the application for these chips is quite possibly endless, the world has seen a massive shortage of semiconductors that will potentially last until midway through 2022. One could wager that the shortage is due to COVID and the long-lasting pandemic, which is a correct assumption, however, it is important to understand how the virus itself played a role in the scarcity of this microscopic piece of technology.

Something that could easily be referred to as the perfect storm, the chip shortage was due to bad timing, poor decision making, and increasing demand for devices woven with technology. Semiconductor foundries in Taiwan (the world’s leading chip producer) and other plants across the world were forced to close due to the pandemic, which halted production and caused a noticeable lack of supply. During this time, consumers were forced to stay home for longer periods than usual resulting in increased demand and purchasing of personal electronics for entertainment, work from home purposes, and students attending classes remotely.

To make matters worse, automakers canceled orders for parts containing computer chips, wrongly thinking car sales would decrease significantly during the pandemic. They did drop at first, though they increased considerably with a demand that was higher than the production methods and supply in place during that time. Additionally, Taiwan is experiencing its worst drought in 56 years. Microchip manufacturing requires massive amounts of pure water for sterilization and cleaning, so this combination delayed the process of chip output even further. On top of all this, existing supply was slowed down by new restrictions at ports and international borders, and by the 56 billion dollars six-day blockage of the Suez Canal.

What does this mean for consumers and businesses? Opinions on the estimated end of the shortage vary. Automakers believe that the shortage could easily linger into 2022, while the CEO of Intel believes it could drag on for two more years. Either way, expect to wait longer to purchase products that use a semiconductor, and expect to pay more for them when that time comes. Part of the problem with meeting the rising demand for these microchips is that you can’t simply make more of them than before. To do so, ten billion dollar foundries have to be built, and the process is painstakingly long and arduous.

Unfortunately, the best course of action in this situation is to try and wait out the shortage. Supply will eventually increase to meet the demand and the imbalance will be corrected, resulting in a more normal price point for these technology-laden products. If you can afford to wait, you’ll be rewarded for your patience.


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