Why are we facing chip shortages?


Why are we facing chip shortages?

In: Technology

the ramp-up in demand of chips from the automotive industry started when the supply lines were already stretched by significant demand for chips from the consumer electronics sector, for 5G phones and infrastructure, new gaming platforms, and IT equipment.



Producing chips has to be planned in advance demand increased at a time it was expected to drop (high current demand for new cars) and not enough workers (Covid social distancing) to produce new chips quickly.

One theory is that as people stayed at home and more and more business, education and entertainment was done over the internet, that drove a lot more demand for new electronics at home as well as capacity in the internet infrastructure. More servers, phones, laptops, GPUs, cameras.

All of these resolve to a very narrow supply chain in terms of chip manufacturing. Due to the very (very) expensive and highly advanced nature of chip manufacturing many companies do not make their own chips. Instead they design them and outsource the actual production to specialized chip foundries or fabs (of which there are not many in the world capable of the most advanced types like GPUs and CPUs)

We tend to hear about companies like NVIDIA, Qualcomm or AMD etc but none of them actually manufacture semiconductors, ie. they are “fabless” as the term goes. Intel and Samsung still owns their own fabs making them one of the more unique ones. Intel might be moving to outsource some of their manufacturing too given their failure in advanced chip manufacturing in recent years.

Companies like TSMC, Global Foundries, Samsung, UMC and SMIC are the very important companies few hear about that underpin most of the chip manufacturing globally.

Covid related factory delays, as well as gold and silver shortages as the precious metals investors are buying up all the supply (in response to government policy of printing dollars out of thin air).

There are also a shortage of workers as many of the chip factories are in Asia, and they are still in partial quarantine due to Covid so the production is not at 100% capacity. Compounded with the increased demand from people wanting consoles and computers for home entertainment and working from home, there is a grater need for the computer chips than the industry can provide.