Chip Shortage – Why Can’t World Churn Out Enough To End This?


Nearly two years after pandemic-related disruptions began, a significant shortage of chips—the components that power cellphones, laptops, and an infinite number of other products—continues to impact businesses throughout the global economy.

Automobile manufacturers have been compelled to suspend operations. The scarcity has impacted a variety of businesses, ranging from gaming consoles and networking equipment to medical devices.

Demand has been staggering in its magnitude.

In 2020, when Covid began upending conventional wisdom, the chip industry anticipated an uptick. The Semiconductor Industry Association reports that worldwide semiconductor shipments declined 12% in 2019. However, they had forecasted 5.9 percent growth in worldwide revenues in 2020 and 6.3 percent growth in 2021 in December 2019.

But in reality sales increased 29.7 percent between August 2020 and August 2021, according to the most recent numbers. Cloud computing and 5G technologies, as well as the increasing usage of chips in a variety of devices, from automobiles to household appliances, are driving this demand.

The spike in demand for high-tech items sparked by work-from-home opportunities, lockdown boredom, and a move to ecommerce has remained unabated, surprising many.

New chip manufacturing plants cost billions of dollars and take two years to construct and outfit, so this scenario is unlikely to improve very soon.

In summary, the semiconductor supply chain has been strained in new and difficult-to-repair ways. Demand is outpacing chipmakers’ ability to meet it, particularly for fundamental yet widely used components that are prone to the type of large swings in demand that make investments riskier.

Reference- Wired, Business Insider, Semiconductor Industry Association Report, Bloomberg