The Chip Shortage
The ongoing crisis for the demand of integrated circuits (also known as semiconductor chips) is greater than the supply, affecting countless industries since 2020. This crisis has led to major shortages on silicon chips for consumers of cars, graphics cards, video game consoles, and countless other products.
A combination of different events, with the influence of the COVID-19 pandemic, allowed for a domino effect of troubles to affect semiconductor chip production. Lockdowns during the COVID-19 pandemic, meant that chip production facilities were shut down, leading to a depletion of chips in stock.
Because of the pandemic, most people had to upgrade their devices, such as webcams, monitors and computers, in order to work from home and for a variety of different reasons, including entertainment.
In 2020, the United States government placed restrictions on Semiconductor Manufacturing International Corporation (SMIC), China's biggest silicon chip manufacturer. The restrictions placed on SMIC were due to a trade war between the two countries. These restrictions made it difficult for the company to trade and sell their products in the U.S.
Instead, they would use other manufacturing plants like Taiwan Semiconductor Manufacturing Company Limited (TSMC) and Samsung. However, these companies were already at maximum capacity.
Another disaster adding to the turmoil in chip production is Taiwan’s drought. The country is the leader of the global semiconductor industry. TSMC alone accounted for more than 50 percent of the global wafer foundry market in 2020. In 2021, Taiwan had its worst drought in over half a century. This halted production for its chip manufactures that need large water supplies. Chip manufactures use large quantities of pure water to clean the factories and the wafers.
For example, TSMC's facilities are known to use more than 63,000 TONS of water a day.
The chip shortages have disrupted the market for a variety of products including cars, gaming consoles, computer components, and so much more. One of the most effected is the production of cars. The average car can have between 1,400 and 1,500 silicon chips. Depending on the model, some may have even up to 3,000+. Cars alone account for 15 percent of global chip production market, while personal electronics account for around 50 percent.
In 2021, car manufacturers lost about $210 billion in revenue due to the global chip shortage.
Computer components such as graphics cards also took a hard hit. The chip crisis made it difficult to acquire a new graphics card for many consumers. An increase in cryptocurrency mining in 2021 also increased the demand even more. Finding gaming PC components has become more difficult and more expensive.
Companies, such as AMD and Nvidia, which freshened their lineups during the pandemic with popular new models have seen 50 to 300 percent price increases above MSRP because of scalpers and resellers. The extent of the effects of the chip shortages carries even further and are beginning to be felt by businesses around the world.
Depending on the length of the shortages, it may even begin to effect the production of phones and other devices.