The world is still reeling from the impact of the pandemic, and it has taken only a few months for things to turn normal, to make things to go to shit in other parts of our lives in ways we hadn’t ever collectively perceived before.
The semiconductor shortage, or more popularly known as the chip shortage, is a reference to the current condition of the semiconductor industry that has now witnessed itself in a shortage. Due to disrupted supply chains, irregular demand trends, inability to access means of production and the redistribution of demand, and a worldwide pandemic, the chip industry is now well aware that it is in deep water, and the only out for it is for it to swim to shore.
The demand for chips even before the pandemic hit, was exceeding its then current supply levels. This year, economist Rory Green called semiconductors as the ‘new oil’ and said that these tiny little things are essential for daily life to function, since they are used in almost every electronic item like air conditioners, refrigerators, automobiles and electronic consumer goods.
In the current world scenario, the majority of the semiconductor production is controlled by countries like Taiwan, South Korea and Japan. Although the share of American companies in the production of semiconductors in terms of revenue is substantial, the lion’s share of the market is comprised of those three countries, with American companies witnessing a significant decline in the production of semiconductors.
So, what was the reason behind the chip shortage in the first place? The reasons for this semiconductor crisis have been in the works a while before the pandemic hit, with the pandemic’s presence only aggravating the problem of an already accelerating issue that was getting out of hand.
Initially, when the pandemic started, there was a fear that this pandemic will be there to stay for quite some time, because of which many various automobile companies decided to cut back on production. Forcing a recall on chips meant for automobiles, chip manufacturers moved to making chips required to accommodate an explosive increase in demand for electronic consumer goods. And since manufacturers had now focused on the manufacturing of chips meant for electronics, it caused a significant decrease in the existing stock of automobile chops, which severely hampered their production once the pandemic was reigned in control.
Furthermore, due to the seriously freaky weather events that have taken place over the past two years, many companies producing chips took a major hit. The Renesas plant in Japan was damaged significantly by a fire, with the manufacturing base being responsible for the production of one-third of the world’s automobile chips. Taiwan, which is one of the largest manufacturer of electronic semiconductors witnessed a drought, which affected its production. Furthermore, in an escalation of geopolitical tensions with China, the country’s business climate is not exactly conducive for businesses to continue smoothly.
Coming to Taiwan’s concerns with China, which is the leading semiconductor manufacturer in the world, its geopolitical tensions in China also pose a serious threat to countries around the world, of which the USA is definitely one of the chosen ones. If tensions amidst China and Taiwan do flare in the coming future, USA will definitely suffer the brunt of the impact caused by this potential shortage.
So, what does all of this mean for us? Well, it means a lot for us. Since the world runs on these semiconductors, any impact in their supply will cause a domino effect on automobiles, consumer electronics, and every other such thing that we use to make our lives a bit more bearable. And since there will definitely be a supply crunch for the goods that function on chips, which also have seen an increase in their demand, will cause a significant push on their prices, causing them to climb up and make the overall cost of living even more than it was before.
Companies like Apple and Samsung, who have themselves been hoarding onto chips from the start, have revised their production estimates and lowered them due to the chip crunch. Apple recently announced that the chip shortage will hamper iPhone production, since it has already been adversely been impacting the sales of iPads and Macs. And all of this is after the fact that Apple now produces its own chips that are used in their newer models for the iPhone and the Macbook product lines.
And since the pandemic has been reigned in by the onset of worldwide vaccinations, the Recovery Affect will come into play beautifully here. This is one of the primary reasons why companies are unable to meet their current demands because of a high backlog of orders that are already pending for their products. Even Tesla was one of the companies that encouraged the use of alternative chips and reduced their production projections for the next year.
According to leaders in the world, the chip shortage is supposed to last for another 2-3 years, with the current levels of production, and existing backlogs taken into account. During this time, majority of the impact of the shortage of chips will be borne by the automobile industry, due to an already depleted level of stock of chips, as well as the allocation of resources by semiconductor manufacturers for the production of chips for the consumer electronics segment.
Governments around the world are trying to deal with this issue in order to overcome the crisis. Joe Biden recently encouraged a for a push in the domestic semiconductor manufacturing industry, and asked for a $50 dollar investment as well. This investment is supported by a bill that has already been passed by the Senate in order to curb the supply crunch by providing manufacturers tax credits and other incentives to boost production levels and reduce dependency on outside sources.
As far as India is concerned, it has faced its own set of issues. Given that the automobile industry was already a bit unstable after 2019, this wave of the shortage of semiconductors has impacted it even further, with brands like Maruti Suzuki increasing the prices of their vehicles and slowing down on production in order to keep up with the current supply levels. Even Mahindra’s Thar has had the longest waiting period for an automobile due to the very same reasons.
So, given that this shortage is going to continue for the next two or three years, it is safe to say that until the shortage gets back to normal, buying almost any sort of consumer good will have a heavier impact on your pocket, and that the overall demand of the products will only continue to rise while the existing supply levels dwindle. Until and unless this shortage is dealt with, the world will continue to face a backlog of products waiting to be produced, which will definitely hamper the global economy’s production capacity. So until then, spending on consumer electronics isn’t advised, but if you’re someone who can afford it, buy two iPhones and gift me one.