The Echo-nomist

The world is facing a chip shortage. Not your edible chip shortage though🍟! There is a semiconductor chip shortage.

A semiconductor chip is an electric circuit with many components like transistors. It sits between a conductor and an insulator and are found inside almost every electronic device.

The average car needs between 50 to 150 chips. WOAH. They’re needed for parking support, navigation control and basically every cool/ modern feature in cars.

Any guesses as to what caused this shortage?

If you guessed the pandemic, COVID etc. you’re right! (is anyone even shocked at this point?)

The pandemic introduced the concept of Work From Home. This came with a rise in demand for laptops and devices required for WFH. Sitting at home was very boring for people so for entertainment purposes, there was a growth in sales of TV’s, PlayStation etc. The chipmakers didn’t expect such a surge and weren’t ready for it.

There’s another reason- They hype in demand for 5G smartphones pumped up the demand for 5G chips.

Further, because of coronavirus, the automobile industry reduced their chip orders significantly. Little did they know how quickly the sales would rebound. When they realised this, they rushed to place orders. But they got turned down.

The chip makers were too busy trying to fulfill the orders of laptop manufacturers and smartphone giants. Also, for the chip makers, automobiles aren’t their biggest market so if given an option, they’d choose laptop and smartphone manufacturers. And so they did… According to Bloomberg, the annual smartphone market alone is more than 1 billion devices, compared with fewer than 100 million cars.

This shortage has been so hard on the automobile industry that GM and Ford had to shut down car plants. Tesla also briefly closed its Fremont factory due to shortages.

More than 80% of the chip production happens in Asia, with China leading it.

Tesla has been using its own self-driving computer chip in some car models since 2019 (they’re always two steps ahead). But that doesn’t mean the shortage doesn’t effect them. The keyword here is “some” car models. They’re not completely self-sufficient as of now. But this shortage will definitely lead to more companies being self-chip-sufficient.

Apple was forced to delay the launch of iPhone 12 because of the shortage. Samsung will have to delay the launch of their high end smartphone, despite the fact that they produce their own chips. They sell $56 bn of semiconductors to others and keep chips worth $36 bn for themselves.

How will it affect you? The waiting time for some car models will increase and certain gadgets will be harder to find. Because of shortage, the prices will rise. The supply of gadgets will be limited.

It doesn’t seem like the shortage will be over anytime soon. It can take upto two years to get a semiconductor factory up and running. Obviously manufacturers want to benefit from this shortage and that’s why they’ve been increasing the prices!

Charles Chestnutt was right, “we sometimes underestimate the influence of little things.”