About the Chip Shortage
The Covid-19 global pandemic brought chaos to many segments of the economy. From travel to fuel to electronics, the pandemic caused shortages and restrictions that will reverberate for years to come. The focus of this article is pertinent to the shortage impacting General Informatics — computers. Specifically, the tiny chips that make everything work.
All over the world, there are issues stocking computers or even the parts to maintain the ones currently in use. Anyone who tried to buy a computer recently probably noticed either long wait times, price increases, or worse, no availability. Should we be optimistic and hope that after almost two years of this pandemic the end is in sight? Unfortunately, the answer is no. We likely have another 3-4 years until the supply chain will fix itself and be normal again. The reasons for the chip shortage stem from high demand, lack of labor, and transportation. Let’s look at each of those a little further.
When the first quarantine was announced in early 2020, people were sent home to work or attend classes remotely. As a result, the world saw massive increased demand for laptops. Prior to March 2020, the average American household had .8 computers. This low figure was likely due to the increased internet accessibility of smart phones. Once the country was in “lockdown”, families found themselves needing on average 2-3 computers depending on how many school-age children were in the household. Naturally, supply was reduced significantly.
Another factor affecting demand was the large increase of cloud computing. Simply put, the “cloud” is a collection of resources typically run on an off-site massive server farm, requiring extensive resources and computer processing power. As such, they demand a large supply of computer components to maintain, adding to the supply shortage.
Lack of Labor
By the end of 2020, the surplus of laptops in warehouses were non-existent, and the next trial to overcome was producing computer chips as quickly as possible.
The United States manufactures on average about 12% of the world’s computer chips annually. However, in February 2021, a natural disaster in Texas, home of Intel’s largest chip producer, caused a power crisis (a/k/a “The Freeze”) that completely halted production. Additionally, Taiwan, the global leader in chip production, worked for several months at reduced capacity, and at times had to completely shut down most of its factories.
The final issue is shipping. Currently, there is a surplus of computers and vehicles waiting for chips to complete manufacturing. Halfway around the world, there are thousands of chips sitting and waiting to be shipped to their final destination. So, what’s the hold up?
Throughout the Covid-19 pandemic, China, the leading exporter of chips, placed restrictions on docks and shipping facilities due to associated national lockdowns. Adding to frustrations is the fact that there is also a shortage of shipping containers. As a result, ports around the world house millions of dollars in product without the metal containers required to ship them from point A to point B. While the root cause of the shortage is unclear, some attribute it to hoarders buying the containers to convert to storage units as well as large increases in the shipping-container-home trend. Another metric to examine is the large reduction in steel production that made the material scarce. Regardless, if chips can’t ship, costs of those available increase, as does the wait times for new ones.
What's Next for the Chip Shortage?
While this supply chain issue is affecting multiple markets, it appears to hit the electronic industry hardest. What can we do to resolve this issue? One option for consumers is to stretch the life of our electronics. Examples include:
- Foregoing annual or bi-annual phone upgrades, opting to keep the phone for 3-4 years instead.
- Buying more powerful laptops. This may mean spending 30-40% more on a laptop initially but doing so could extend its use by 3-4 years over a cheaper, less equipped version.
In summary, best estimations state that the chip shortage will start to get better around Q1 2023, but we are likely to deal with its ramifications well into 2024.
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