In 2021, the Chips are Down

By Jonathan Paglilaunga, Staff Writer

In spring of 2020, when the COVID-19 pandemic was in its early phases and lockdown was in full effect, the demand for chips to supply technological computing devices was completely depleted. In these several months where the economy has begun to recover slightly, there was a severe difference in the high demand for semiconductors and the ability for various companies to actually fulfill orders. In the current technological age, these shortages impact nearly every tech-induced product, including smartphones and vehicles.

Since their initial manufacturing cutbacks, electrical companies and auto makers are pressing to order the products they desperately require to fulfill their needs. Such organizations are witnessing their orders being turned down since chipmakers are prioritizing their limited supply for phone making giants like Apple who are producing new waves of 5G phones. 

Christiano Amon, president of the world’s largest mobile chipmaker, Qualcomm, states, “The shortage in the semiconductor industry is across the board” and he further references the industry’s reliance on various suppliers in Asia.

Qualcomm and many other chip makers outsource their production to various Asian companies such as TSMC (Taiwan Semiconductor Manufacturing Company) and Samsung Electronics Co. These two companies are increasingly becoming the only source of help for producing the highest quality semiconductors. Consequently, the capacity to produce these components requires significant amounts of funding and planning alongside their customers.

Another factor for the depleted supply is attributed to the extreme stockpiling by companies. For example, Huawei Technologies Co. is incorporating this methodology in an attempt to protect their success in their industry after being dealt heavy sanctions by the United States. With Huawei as a frontrunner, Chinese imports of various chips climbed to almost US$380 billion in 2020, nearing 20% of all the country’s total imports. Will Bright, co-founder and chief product officer at Drop, reports, “There’s a chip stockpiling arms race.”

In citing the shortage’s significant impact on the auto industry, General Motors Co. was forced to idle three North American facilities while Ford Motor Co. is forecasting a 20% drop in near-term output. Chip shortages are expected to reduce sales for automakers by US$61 billion and it is anticipated that the impact to the electronics industry could be much worse.

According to Neil Mawston, an Analyst for Strategy Analytics, reports, “The virus pandemic, social distancing in factories, and soaring competition from tablets, laptops and electric cars are causing some of the toughest conditions for smartphone component supply in many years.”

Mawston also argues that essential smartphone components have risen by at least 15% in the last 6 months.

As a result of the dried-up supply, we have already witnessed how low-volume buyers like auto manufacturers have struggled to secure chips for their products. In addition, gaming console makers, Nintendo, Sony, and Microsoft have failed to create a desirable amount of their respective systems. The game hardware industry is facing severe supply issues that could affect sales and production for the next holiday season. Surprisingly, airline manufacturers are concerned about matching demand for aviation in a post-pandemic world and even are disposing of old aircrafts to effectively manage their balance sheets.

Unfortunately, only time will tell if chipmakers will be able to ramp up production amid the COVID-19 pandemic to meet the surging demand and whether or not industry professionals can discover an efficient solution. How many more sectors could this shortage potentially plague in the near future?

Photo by Umberto on Unsplash

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