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Today we will discuss Global Chip Shortage. Earlier analysts had reported that we might face a chips shortage. However, yesterday automobile manufacturers Nissan and Suzuki said to Halt Production in June due to global chip shortage. This shortage delayed the launch of PS5.
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Today, chips are in every electronic device from a smartwatch to even a toothbrush. In this era of smart devices, the use of chips has increased drastically. But recently the world is facing this chip shortage.
Semiconductor chips are made in highly specialized factories known as “fabrication plants” aka “fabs”. These fabrication plants are specialised as they have a controlled environment.
These factors are specially taken care of while making these chips
- Dust
- Temperature
- Electricity
The chips will be destroyed if the above factors are not controlled. Due to this reason, setting up a fab is so expensive. The time required to set up a fabrication plant is long. It may take up to two years to set up a new fabrication plant.
So you will be thinking why the fabrication plants are not working 24×7 for manufacturing chips??
Table of Contents
Chip Shortage Reason
To understand that, we will need to go back to the initial COVID-19 lockdown times. COVID-19 paused the economy. The market analyst and researchers reports suggest that there may be a decrease in consumer spendings behaviour. People will not buy non-essential items.
Automobile Industry role’s in global chip shortage
The automobile companies took these reports seriously and they stopped their production. Automobile manufacturers kept the production of the chips on hold. The automobile industry uses chips in cars for power steering, music system, AC, power windows, temperature controls. The 30-40% cost of a car includes the cost of these semiconductor chips.
Introduction of new cultures
After lockdown, two new cultures were popular, first, work from home, second, education from home. Due to these cultures, the demand for electronic devices spiked rapidly hence disproving the analyst’s reports. People bought laptops, tablets, mobile phone, Wifi routers (Wifi routers also have semiconductor chips) instantly. Increasing demands of electronics led their manufacturers to place advance order at fabs as they will be out of stock soon.
Then the automobile industry also noticed that the demands of products are back. Till the time they realized the increasing demands of chips, it was too late. The fabs were out of stock. This broke the supply chain of the chip industry, thus, causing a global shortage. The automobile industry still has heavy stock, which is not in complete status due to this shortage.
Additional Factors that boosted the shortage
5G
One factor that caused this shortage is – 5G.
Every mobile phone manufacturer wants to launch its phone with new 5G technology creating huge demands for 5G chips. The demand for these chips accounts for 30% of total chip production that year.
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The extra usage of the 5G chips escalated the issue as well. Excessive demand for chips was made even when 5G is not available. Still, companies were selling 5G capable phones as “5G Ready”.
US-China Trade War – Link to Global Chip Shortage
The top 3 chip producing countries are China, Taiwan and Hong Kong. China’s international relation impacted this slightly. As exporting their product is difficult now after the US-China conflict. Also, Indian consumers were boycotting Chinese products. On the other hand, US companies cannot deal with Chinese companies due to the change in the US policies. The changed policy also limited the exports of these countries resulting in shortage.
Cryptocurrencies
One more factor responsible for this storage is Cryptocurrencies. It boomed after the lockdown. However, the mining farms uses high-performance computing power to process crypto transactions. The mining system uses a large number of chips. Thus, Mining farms also added to the shortage by increasing the demand for semiconductor chips.
Industry’s Acceptance
Every smartphone manufacturer confirmed that they are affected by this global chip shortage. They are unable to produce at their normal speed due to the shortage. The automobile manufacturers are also affected by this resulting in increased prices of their cars.
Who is benefiting from this global shortage ?
Now let’s discuss the parties that benefited from this global shortage. As the supply of chips is less it will result in high prices. This does not mean that the car or phone maker will get the benefit from this shortage.
But the companies that make equipment for fabrication plants are making a lot of money out of this shortage. This is a win-win situation for fabrication equipment makers. New fabrication plants are built to fulfil chip demand. These companies are demanding high prices for the equipment used in fabrication plants. As there is no alternative to these pieces of equipment the fabrication plant has to pay more to set their plants, thus resulting in increased prices of the manufactured chips.
However, the phone makers will not directly increase the price of the final product. Rather they will sugarcoat the price increase with a new feature like 5G, special edition version and many more.
Also notice that after this shortage we have not seen many deals on electronics on various online shopping websites as compared to before. Earlier, we used to see many deals on electronics products.
The products which are using these chips are also increasing their prices slowly and gradually. We hope that this supply chain delay is restored ASAP.
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