If you’ve had to buy a computer, cell phone, video game or car in recent years, you must have faced high prices and even difficulty finding what you really want. One of the reasons behind this is the shortage of chips: semiconductors are in short supply around the world, affecting many product lines and many markets.
The crisis is not expected to end anytime soon. The pandemic did indeed contribute to this scenario, but it is not the only factor behind the problems in the supply chain.
Trade war was the embryo of the chip crisis
One of the first moves in the chip scarcity dominoes was the US sanction against Huawei in 2019. Donald Trump’s government has claimed security concerns to ban the company from the country, but the truth is that tempers between Beijing and Washington they were fierce, with an intense commercial dispute. This has prompted other Chinese companies to stockpile components, fearing similar measures that would restrict their activities.
Then 2020 came and, with it, the pandemic. With lockdowns and restrictions to reduce the circulation of the coronavirus, people started to spend more time at home — and invested in devices to make work better and isolation less horrible.
This surge in demand was yet another pressure factor for the chip supply chain. Even not-so-tech products use simple chips like microcontrollers, and that has an impact.
And it wasn’t just home shopping that represented an increase in the need for chips. Investment in cloud computing and 5G infrastructure also demanded more silicon.
High prices, long wait
The current situation is very critical. Chips that used to cost $1 a few years ago now go for $150. Delivery times that used to be between four and eight weeks have risen to as much as 52 weeks, with no less than 24. There is a lack of machines to manufacture, and foundries are working at 95.6% of full capacity, against 76.5% before the pandemic.
These chips are much cheaper and easier to produce than modern computer and console CPUs and GPUs. However, the demand for them is also very high, as they are shipped in practically everything.
Furthermore, a practice may be contributing to make the scenario even worse. Not knowing when or if their orders will be filled, companies have started to place larger orders, as a way to protect themselves from a general shortage and maintain some predictability in their business. However, this also increases demand and exacerbates scarcity. There are suppliers that have all their production sold until 2023.
To make matters worse, weather events such as the lack of water in Taiwan and the cold wave in Texas impacted production.
The impacts are huge across many product lines. The most obvious example is perhaps the PlayStation 5: released in December 2020, it disappears from stocks all the time. Apple also said that its less-than-optimal bottom line was to blame for chip shortages, and Intel already thinks the problem will drag on until 2023.
Only long term solutions
When there are limits to the production of a product, it’s just a matter of building more factories, right? Not always. In the case of silicon, the solution is not that simple.
A factory takes a long time to be ready and it still takes time for everything to be correctly adjusted. Sony and TSMC have announced that they will invest US$ 7 billion in a new factory, but it will not be ready until 2024. It is the same case with Intel: the company’s new plants will only come out this year. Consulting firm Gartner estimates that investments made by chip makers will reach US$ 146 billion this year, 50% more than in 2019.
Another problem preventing investment in new factories is that the margins for simpler chips are too low. Furthermore, business is cyclical: right after peaks in demand, there are also sharp drops, which could leave many of these facilities idle. The increase in production could also lead to a fall in price in the medium and long term, further reducing profit.
With information: Wired via Ars Technica, Agência Brasil.