The demand for electronic devices that use semiconductors is reaching new heights, and has already far outpaced the global supply of chips.
Maskot / Getty Images“Out of stock”: the frustrating warning has made its way to an increasing number of phones and laptop manufacturers’ websites over the past year, often leading to long waiting lists for consumers wishing to get their hands on shiny new electronics.
At the heart of the problem is a global shortage of semiconductors, which is not showing signs of coming to an end anytime soon. Worse still, it is likely to trickle down to the production of everyday products that have little in common, at first glance, with high-end technologies. Think children’s toys or microwaves.
In January, the global semiconductor industry sales reached $40 billion, an increase of 13.2% compared to the same time in 2020. But although chip manufacturers assiduously continue to produce components, the demand for electronic devices that use semiconductors is reaching new heights and has already far outpaced the global supply of chips.
The COVID-19 pandemic has played a large part in bringing about this imbalance. As companies sent their staff back home to work remotely, PC and smartphone sales surged. At the same time, users turned to new, chip-filled forms of entertainment to pass the time during months of lockdown, ranging from gaming to cryptocurrency mining.
Toss in some geo-political tensions between China and the US, which has led Chinese tech companies to aggressively stock-pile chips and chip-making equipment in anticipation of US sanctions, and it’s easy to see why getting your hands on a new smartphone is not a given these days.
PC manufacturers, for example, have suffered from severe supply chain issues for almost a year. Although the PC industry recorded record sales in 2020, analysts estimate that numbers could have been even higher had components been readily available.
Most gamers will be aware that gaming consoles were also in short supply during the past months. Sony acknowledged that it had not been able to keep up with demand for PS5 and warned that the constraints on the supply of semiconductors will last through the next year.
Shortly after it was released, Apple’s iPhone 12 Pro came with up to three weeks waiting time. Samsung, reports the BBC, has said it might skip the launch of the next Galaxy Note smartphone. Xiaomi has described a “very, very serious” situation with shortages affecting the whole industry.
“At some point consumers will be affected by the chip crisis,” Ondrej Burkacky, McKinsey lead on semiconductors, tells ZDNet. “The high noon season for consumer electronics are Q3 and Q4, and there might be shortages of several products during this time.”
In some cases, users might even see a price hike: Xiaomi, for example, warned that the company might have to pass costs linked to the chip shortage on to consumers, although it didn’t go into further detail.
Businesses, which tend to buy products at a larger scale, might be affected even more. A company doesn’t buy one PC, but will purchase thousands at a time, for example. This means that without careful planning, the productivity and agility of employees could be impacted.
But for Glenn O’Donnell, research director at Forrester, there is yet another consequence of the shortage that should require all our attention: that of the ripple effect that semiconductors might have in other markets.
Chips, in effect, are prevalent in many everyday products that, unlike some consumer electronics, haven’t necessarily seen a boom in demand during the pandemic – but will nevertheless take a hit from global shortages. “We will see plenty of consumer electronics, PCs, and toys that will have similar issues,” O’Donnell tells ZDNet.
Reports show that home appliance makers, for instance, are struggling to meet demand, leaving consumers unable to purchase products that are powered even by simple processors, such as microwaves, refrigerators and washing machines.
Home appliance company Electrolux recently described its supply chain as “strained” in many areas, especially for electronic components, which has meant that the firm couldn’t meet demand across all products last year. Electrolux anticipated that the situation could deteriorate further in the coming months.
O’Donnell mentions smart home devices such as video doorbells and smart toilets – all equally at risk of future chip shortages. Even a US-based dog-washing company has found itself missing the treasured components to power the firm’s shampoo-dispensing electronic booths, according to the Washington Post.
Where the crisis is most apparent, however, is in the automotive industry. In the past months, semiconductor producers have preferred selling their silicon to higher-paying smartphone manufacturers to the detriment of car makers, leading to a crisis in the supply chain for vehicles.
Earlier this year, General Motors temporarily shut down all three of its North American plants as a result of shortages, while Ford warned investors that production slowdowns might affect its bottom line. In the UK, BMW suspended production at the company’s Mini plant in Oxford citing once more a shortage of computer chips.
This in turn is starting to worry steel service centers, especially in Europe where automotive accounts for as much as 70% of sales for some mills. Prolonged suspensions of car production on the continent, therefore, could negatively affect the market.
O’Donnell explains that given the omnipresence of semiconductors, it is effectively the entire economy that is at risk of the secondary effects of chip shortages.
“There is a potential secondary effect, and we are studying this now,” says O’Donnell. “For example, farming has gone high-tech. If the farmer cannot get the new milking machines because they lack the chips, then his costs go higher and perhaps it impacts the price of milk. That sounds far-fetched, but I believe such a secondary economic impact is plausible.”
The balance between the supply and demand for semiconductors is unlikely to be re-established in the next few months. In fact, O’Donnell anticipates that product supply chains will be stressed for another two years.
Of course, chip manufacturers are scrambling to build up capacity. Intel has recently said that it will spend $20 billion making two new chip factories in Arizona, while expanding facilities in the US and Europe; TSMC, for its part, has pledged $100 billion to boost capacity.
Governments are also coming under pressure to take action, and the Biden administration has promised to take “aggressive steps” to tackle the shortage. Last week, the EU Commissioner Thierry Breton also met with TSMC and Intel to present the bloc’s strategy to increase European semiconductor production, with the goal of reaching a 20% global market share.
Increasing manufacturing capacity, however, takes time: it can take up to two years, for example, to construct a new facility.
Ultimately, it is only as demand reduces that pressure on chip supplies will subside. “Supply constraints are much more demand-driven than supply-driven,” Daniel Goncalves, research manager for Western Europe at IDC, tells ZDNet. “Providing components isn’t the problem. The problem is that demand is much stronger than it used to be, so the pace of production is much slower than it should be. This is why it is very hard to predict when this will end.”
When it comes to PCs, for example, IDC expects that shortages will continue through 2021, as consumers keep ordering more devices; it is only once demand slows down in 2022 that production will be able to catch up.
And while the global semiconductor shortage continues, consumers will often find few alternatives to waiting it out before they receive the products they purchased. Other options include buying second-hand or choosing other providers, but one thing is for certain: you shouldn’t expect stocks to be full at all times.
“Consumers may need to be prepared to accept different products or versions of products, or wait to receive products,” Alan Priestley, research vice president at Gartner, tells ZDNet.
“Plan ahead, don’t expect to be able to buy or order something and get it immediately, look for alternate suppliers and products, be prepared to take higher or lower spec products if the one you wanted is not available,” he recommends.
