Semiconductor Shortage: Why It’s Happening and How It Affects the Tech Industry

Credit: AMETEK Programmable Power

Where there is a technology that needs a computer, you can assume a semiconductor is involved. From smartphones in your pocket to electric vehicles in your garage, semiconductors have played a crucial role in our day-to-day lives. But what happens if there are not enough semiconductors to go around? That is what we’re experiencing now.

Kif Leswing, a technology reporter for CNBC, mentioned in his article that the shortage happened due to three reasons: strong demand for electronics, shifting business models that created a bottleneck among outsourced chip factories as well as effects from the United States’ trade war with China, which former President Donald Trump started.

When the pandemic hit the world in 2020, people were forced to buy equipment to be able to either work or learn remotely. PCs, tablets and laptops were the first to fly off shelves. Then the latest smartphones and gaming consoles came and went.

All these combined created a huge demand for electronics, which means a huge supply of semiconductors had to be used in order to meet the new demand.

PCs and laptops were the first to go during the global lockdown as employees and students alike buy equipment to work or study from home. Credit: Dell

Next, top semiconductor companies have also contributed to the shortage due to a structural change in the industry. Many semiconductor companies only design the chips and the technology in them while the process of actually making the chips is outsourced to other companies, who were already working at capacity even before the pandemic.

Finally, former US President Donald Trump’s trade war with China had a profound effect on the industry as the restrictions his administration placed on Semiconductor Manufacturing International, the biggest chip manufacturer in China, prevented them from manufacturing at full capacity to capitalise on the chip shortage.

Getting a PS5 is still difficult due to the semiconductor shortage Credit: Sony

The lack of semiconductors caused supply shortages for new game consoles such as Sony’s PlayStation 5 and Microsoft’s Xbox Series X, making it difficult to buy one even without the scalpers. “Demand was greater than anticipated,” Playstation CEO Jim Ryan mentioned in an exclusive interview with the Washington Post. “That, along with the complexities of the supply chain issues, resulted in a slightly lower supply than we initially anticipated.” Nvidia, meanwhile, had opted to release old GPUs like the GTX 1050 Ti and GeForce RTX 2060 to the public in order to meet the demand for graphics cards due to the shortage reaching concerning levels.

The shortage has also affected the automobile industry as EVs require semiconductors to operate and regulate a car’s needs such as power steering and EV software. Fitch Ratings, an award-winning provider of credit ratings, commentary and research, discovered that some car-makers are reducing output and selectively idling plants until the shortage eases.

However, they have noted that car-makers have prioritised the available chips for their most profitable and best-selling models to reduce pressure on earnings. Toyota, on the other hand, has seen increased profits during the pandemic due to the stockpiled chips that were saved before the pandemic. The chips the company stored up should last them for four months according to the company.

The smartphone industry was not spared by the semiconductor shortage. Computerworld executive editor, Ken Mingis, detailed that an iPhone could take weeks to arrive at a customer’s front yard if one was ordered. This was compounded when Apple released its latest devices such as the iPhone 12. Qualcomm’s Chief Executive Officer, Cristiano Amon, said that the company is struggling to meet the demand for smartphone chips. He also added that the industry has been relying on a handful of factories in Asia to manufacture the chips needed for automobiles, smartphones, and computers. He then predicted that the semiconductor supply should improve in the second half of 2021.

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Written by John Paul Joaquin