The global chip shortage, also called the semiconductor shortage, seems to have taken hold of everyone in the world, although it should be something that should be obvious.
Almost everything these days has silicon chips, from our phones and computers to our kitchen appliances and even our cars. And all this technology is getting more and more advanced, so the best processors aren’t just being reserved for the latest gaming PC.
This is also not the first time this has happened: major chip shortages have occurred on several occasions before, including in 1988 (opens in new tab) due to high demand and in 2000 due to a shortage of various Intel products (opens in new tab). And again in 2011 when an earthquake in Japan caused a severe shortage of memory and NAND displays (opens in new tab).
Chip shortages tend to happen due to supply chain or human labor reasons, but instead of industries that rely so heavily on these chips overhauling the production process to make it less vulnerable to such shortages, it has largely been a business case as usual.
And now that the latest shortage, which started in 2020, has the entire tech industry at its fingertips, from cars to the latest and greatest graphics cards and video game consoles, everyone is suddenly asking what the global chip shortage is, why it’s happening, and how long it will be before we see any improvement.
Some of these questions are easier to answer than others, but we’ve gathered all the resources we can to help explain how we got here.
What is the global chip shortage?
The global chip shortage is a phenomenon that affects the semiconductor industry and the industries that depend on it when the former cannot produce enough chips to satisfy the demand of the latter. These chips are absolutely vital to the tech industry at large as they are used in virtually every modern electronic device in the world.
Integrated circuits are created by weaving tiny semiconductor nanoelectronics onto layers of silicon. This invention revolutionized electronics – and the world – for the past 70 years, but it also created a thorny problem.
Unpredictable disruptions can result in a massive shortage of almost all consumer goods that have electronics or employ them at some point in their production. This can affect everything from the quality of rail service in cities to the food that makes it to supermarkets, far beyond just impacting the availability of consumer goods such as the best monitors, iPads and computers.
We are currently in such a moment and this has been experienced by consumers as a shortage of almost everything in the last couple of years – so much so that it is one of the main drivers of global price inflation in most consumer goods.
What caused the global chip shortage?
The main cause of this global chip shortage is the ongoing COVID-19 pandemic, which started in late 2019. There have been two main results of this: disruptions to supply chains due to labor shortages, as well as a 13% increase in global demand (opens in new tab) for PCs due to the shift to work-from-home economics.
In the computing industry in particular, the shortage has been further exacerbated by the rise of cryptocurrency. Graphics cards and CPUs have been in short supply as those mining these digital currencies have added an unexpected source of demand for these components, making it even more difficult for the traditional consumer to find them.
Another cause was Taiwan drought series (opens in new tab), one of the world’s leading chip production centers and headquarters of Taiwan Semiconductor Manufacturing Company (TSMC), one of the world’s leading semiconductor suppliers. These droughts have affected the production of ultrapure water, which is used to clean both factories and the silicon wafers from which silicon chips are manufactured in volume.
A number of other events that further impacted the chip shortages, including political tensions between the US and China, winter storms in texas (opens in new tab)fires at Japanese facilities, COVID-related factory shutdowns in Shanghai and the ongoing Russia-Ukraine war.
When will the global chip shortage end?
Many industry professionals such as Intel and AMD have made projections about when the semiconductor industry would recover from this global chip shortage, and the consensus is that it will last until 2023.
Pat Gelsinger, CEO of Intel said that “Demand has exploded to 20% year over year and disrupted supply chains have created a very large gap… and this explosive demand has persisted”, something that will take years to fully recover. Dell co-founder and CEO Michael Dell also believes the shortage will last for a few more years.
AMD CEO Lisa Su a similar perspective, believing the shortage will begin to ease in late 2022 as “the pandemic has just taken demand to a new level.” This was also supported by forecast reports from Gartner, an industry analysis firm, which stated that it would also last through 2022
About that, both TSMC and Quanta Computer – the sole suppliers of some of the best models of MacBooks and Macs — have been looking to open new factories and change production sites to increase chip production, but that is years from helping to alleviate the shortage. TSMC is also trying to open US locations, but it has been an equally slow process.
There is hope, however, as some recent developments have helped alleviate the shortage. Graphics card and CPU stock, which has been a pretty accurate representation of shortage status, slowly recovered. One of the main reasons is the decline in Ethereum mining, as well as cryptocurrencies in general.
Chip manufacturing factories that were started before the pandemic are starting to come online, and some of the demand from home-based and hybrid workforces for new technologies for their jobs has already been largely satisfied and is unlikely to increase in the way it has. in 2020.
With new technology products being launched every year, however, and the increasing penetration of computers into formerly analog products and services, it’s impossible to say now how far we are from a complete recovery, or if it’s even possible.