Global chip shortage

These are the 6 causes of the global chip shortage

The global chip shortage is spreading. In addition to manufacturers of smartphones, laptops, game consoles and cars, manufacturers of household appliances, machines and TVs are also involved. What are the causes? And how can you respond to this?

The scarcity in the semiconductor sector is felt across a broad front. It is important to understand what the causes are.

1. Intel

Chip manufacturer Intel was already confronted with a shortage of chips in 2018, after the production of 14 nanometer chips came into trouble due to the difficult development of new 10 nm chips. This shortfall was not yet eliminated when the launch of new 7 nm chips was also delayed.

Intel's blunder has caused more computer manufacturers to switch to AMD, which - unlike Intel - outsources the production of most chips to Taiwan Semiconductor Manufacturing (TSMC). This put additional pressure on TSMC's factories.

2. Lower Memory Chip Prices

Memory chip prices rose in 2017 and 2018, but have fallen since 2019 due to declining demand from PC and smartphone manufacturers. In response, DRAM and NAND chip manufacturers, including Samsung, SK Hynix and Micron Technology, cut production before the pandemic broke out.

3. The corona crisis

The market was already quite erratic before Covid-19 broke out, but the pandemic led to even more unrest. On the one hand, the demand for mobile devices, PCs and data center upgrades increased as more people started working and studying remotely. On the other hand, the supply of semiconductors stalled. Many chip manufacturers have since recovered and have rapidly ramped up production. But this is probably not enough to meet the high demand for chips. Intel recently warned that the global chip shortage could continue for another two years and that huge investments are needed to solve the problem.

4. Innovation

Global demand for chips has been quite cyclical in recent decades. But due to the advance of new technologies, such as cloud services, the roll-out of 5G and artificial intelligence, there is an increasing demand for increasingly advanced chips. This can break the traditional economic cycle.

In addition, more and more devices such as telephones and cars are connected to the Internet, further increasing the demand for chips. Chip manufacturers expect that every smartphone that can be connected to the 5G network will require $25 worth of front-end chips. With 4G it was still 18 dollars and with 3G 8 dollars.

Cars are also increasingly crammed with electronics. In 2000, electronic components in cars accounted for 18% of total production costs. According to IHS and Deloitte, that had already increased to 45% last year and that percentage is likely to rise further.

All these developments are expected to lead to a sharply higher demand for chips in the coming years, as a result of which the shortage will continue.

5. The ongoing tech war

There has been a technological arms race between the US and China for some time now. The US has imposed sanctions on several major Chinese companies, including SMIC and Huawei, over national security concerns. This exacerbates the shortage of advanced chips in China.

Moreover, the sanctions encourage the Chinese government to invest more in its own domestic chip manufacturers, to become less dependent on other countries. This too could cause some unrest in the global chip market.

6. Strong dependence on some foreign players

The chip market still relies heavily on a few companies from outside the US, including the Dutch chip machine manufacturer ASML, the Taiwanese TSMC and the South Korean Samsung. In addition, some incidents, such as the power outage at TSMC, the production hiatus at Samsung and the fire at the Japanese auto chip maker Renesas, have shown the vulnerability of the semiconductor supply chain and how reliant companies are on a few foreign players.

And now?

The worldwide chip shortage has consequences for everyone who orders products that contain chips. Count on a significant delay: it will take longer before you actually have your product. It is also questionable whether you will receive it as you ordered it. Due to the current scarcity, the prices of products will rise.

The global chip shortage will continue for a long time to come. Analysts predict that it will only get worse, and that the chip shortage will certainly persist into 2023. At Airios we do everything we can to deliver as much as possible, but here too we ask for your understanding if it takes a little longer.