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Global chip shortage: what are the causes and effects? And how long will it last?

We hear every day about the shortage of chips. But how long will it last? And especially when did this big problem that brought the global economy to its knees? Here we will try to analyze where and when the problem originated and what the future prospects will be. In the same way we will try to give "a solution“, Starting precisely from the causes of this shortage.

The origin of the chip shortage: when and where did it happen?

Let's start with the when. Unfortunately, the first negative effects of this chip shortage were seen in the very worst period, at a time when the pandemic, one started trade war between the two poles of the world (China and USA) and when they occurred drought e fire. The latter two, although it might seem absurd, have contributed significantly to the slowdown in semiconductor production, but we will see it later. But where are these components? Everywhere: from smartwatches to refrigerators, from smartphones to cars.

And just the automotive industry it was the one that suffered the most of all. And here we see where the problem arose. The production of cars requires an immeasurable amount of microprocessors as inside each car there are hundreds of processors of different types. At the beginning of the pandemic, when the road traffic has dropped dramatically, the number of cars ordered has also begun to decrease. Just some data to understand gravity: IHS Market, in mid-February, it calculated that orders in the first quarter alone fell by 672.000 units.

The downside was that the manufacturing companies, most of which a Taiwan but not only that, they had to change production. As the number of processors for automobiles dwindles it is increased demand for chips for everyday items such as tablets, PCs, desktop computers, smartwatches and smartphones. This is obvious if we think that much of our time during the pandemic was spent at home. This is precisely where the problem arose: too much demand for these technological genres. Another data to understand how much the demand has increased: Semiconductor Industry Association said in early March that chip sales in January 2021 reached $ 40 billion, the 13.2% more than in the same month last year.

Could the problem have been solved with larger stocks?

Some will say: but the problem would have simply been solved having stocks or producing more to store the chips? Yes, in a sense it is true but it must be considered that the cost to produce these processors is very high and the time taken to manufacture one is just as long. On average, to produce only one wafer (this is the profane name) it takes from 4 to 8 weeks. So try to imagine the costs for each single chip. The answer to the initial question is therefore "Yes, but also no". On the one hand, overproduction means cutting costs (for the manufacturing company) but on the other it means anticipate costs that it is not known if they will be covered (from the purchasing companies).

Another solution would have been build new factories: actually some companies have done it, while others have “simply” increased the pace of work. However, building new foundries is also expensive and time-consuming. Not to mention that at the end of this pandemic the producer would meet again very high management costs in a moment that perhaps does not require an overproduction.

Meanwhile the production costs have increased: why?

I chip manufacturing costs have risen in the last period and with them also the costs to the purchasing companies. The reasons are many, let's try to see them in order. First, the trade war between China and the US has had a major influence on this situation. One of the biggest buyers, Huawei, has been banned by the former US Trump administration. This meant that companies that were selling to her had to stop exports. Already here you can imagine the money lost. But to say that the ban was only against Huawei is to minimize: dozens of other "minor" companies have fallen under Trump's ax but the outcome was the same.

There have been to aggravate the situation atmospheric events which have increased costs considerably. As we said before, much of the production of the circuits takes place at Taiwan from the company called TSMC. She is the one who provides the same Qualcomm and MediaTek, just to get an idea. But returning to the bomb, in the last period the territory of Taiwan has been the victim of unprecedented droughts. The production of wafer it requires a lot of water (here is another reason for the high cost) but the reservoirs in the area are drying up. The company is therefore obliged to buy water tanks and this weighs on production costs.

How will the chip shortage affect consumers?

It's very simple: as the president of Xiaomi also said prices will rise for everyone. Primarily for companies that produce smartphones but, conversely, also for buyers.

We will continue to optimize the costs of our hardware devices, that's for sure. To be honest, we will do our best to offer consumers the best possible price. But at times, we may have to pass on some of the increased costs to the consumer. We are under pressure, but we are doing well.

Source: Reuters

How long will this death last? It is difficult to say. Some analysts of MarketWatch claim that the problem will continue until 2022. What can we do in our small way? Poco and nothing. One thing that might help though is do not change smartphone (or other consumer items like this one) continuously: this however would not help in the immediate but in the long term considering that, on average, a smartphone changes every 2/3 years.

For its part, Europe has a long-term project in mind, namely that of build car foundries to produce microchips that companies on EU soil usually buy from outside. However, this is a double-edged sword, especially for the "ecological" aspect: the more we produce, the more we pollute. Is it worth it?

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Last updated on June 16, 2024 22:17
Gianluca Cobucci
Gianluca Cobucci

Passionate about code, languages ​​and languages, man-machine interfaces. All that is technological evolution is of interest to me. I try to divulge my passion with the utmost clarity, relying on reliable sources and not "on the first pass".

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