Fishin’ For Chips

What do toilet paper, chicken wings, and game consoles have in common? They all experienced shortages during the pandemic. While scarcity of certain items self-corrected, semiconductor chips remain stubbornly in short supply, affecting the availability of routers, TVs, automobiles, laptops, cell phones, appliances, exercise machines, medical instruments, manufacturing equipment, you name it! Per Goldman Sachs, the shortage has impacted a mind-blowing list of 169 industries, ranging from food processing to steel industries.

While many mitigating measures (including new chip factories) are being put in place, supply is unlikely to improve in the near term and recovery will vary by industry, leading some to predict shortages well into 2022 and beyond. What is a consumer to do?

Expect cost increases in items utilizing chips, and the added shipping surcharges. Consider delaying major purchases, if feasible. Look into repairing and buying refurbished items (such as used cars). Also, evaluate buying past year models that are still replete with the latest functionality. But if you are in need of new electronics (e.g., for the upcoming holidays or due to unavailability of repairable parts), order early while planning for potential delays.

To dig a bit deeper, the reasons for the semiconductor shortage are relatively easy to comprehend but remain difficult to resolve. Three key factors are, a sharp increase in electronics demand, a shift in industry mix, and disruption of global supply chains. At the onset of the pandemic, working and schooling from home ushered an unprecedented demand for consumer electronics, while reducing the demand, temporarily, for automobiles and appliances.

To avoid the buildup of unsold cars, the automobile industry, which accounts for 9% of semiconductor consumption, reacted by reducing orders of various components from suppliers, including chips.

Meanwhile, manufacturers of wireless and consumer electronics, which account for 40% and 25% respectively of chip consumption, sharply increased their orders. Chip manufacturers reacted by reallocating their manufacturing capacity to the advanced process needs of these industries. However, when automotive demand returned, it wasn’t easy to reconfigure the factories back to older technologies. This tightness remains further exacerbated by other disruptions in the global supply chain, including the impact of trade sanctions, uneven lockdown and reopening among countries, lengthening of lead-times, stockpiling, shortage of critical workers such as truck drivers, and even shortage of empty shipping containers, basically gumming up the works for industries used to smooth global supply flows.

As we await the resolution of the chip shortage, it seems like we will need to continue practicing our pandemic honed skills of patience, flexibility and most important, sustainability.