ANALYSIS: The Global Computer Chip Shortage, Explained
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It is hard to walk more than a couple of feet in your daily life without running into a device with a computer chip. These tiny devices are the lifeblood of computers, allowing what we take for granted to function properly. Everything from kitchen appliances, automobiles, and of course, devices require computer chips to function. Year after year, the demand for these chips has increased with no signs of slowing down. This means that the global shortage of computer chips has hit harder than it could have ever before, with large companies facing massive losses because of it. General Motors predicted almost two billion dollars of losses due to the shortages alone.
So how has a shortage of such titanic proportions appeared? As with most things, there is no single factor responsible for the scarcity. Especially as chips touch so many industries, it is hard to imagine that companies would let this occur; however, a large part of the shortage is due to something completely outside of their control.
COVID-19 spared no industries, chip manufacturing being no exception. At the beginning of the pandemic, one of the largest consumers of computer chips, the auto industry, cancelled the majority of their orders. The industry expected a large decrease in sales due to everyone being inside. However in 2021, car sales have jumped back to pre-pandemic levels, leaving car manufactures scrambling for chips. This compounds with the increase in purchases of consumer electronics, and companies stockpiling chips through the pandemic. As people were forced to work from home, and spent more time there, they invested in better electronics such as TVs, game consoles, and more. As the auto industry resumed their orders, the demand for computer chips had already been taken up by other companies, leading to longer waits.
This begs the question: why can’t chip manufacturers just increase production? The issue is that chips are incredibly complex to make, requiring up to three months to produce, and even more to test and subsequently ship. They are extremely small and delicate, with each transistor that makes up the chip being smaller than a virus. Chips also require a perfectly clean environment to prevent damage. Small transistors make them vulnerable to damage from the smallest of dust particles. This results in the rooms in the factories being one thousand times cleaner than a hospital operating room. All this complexity means that rushing production will only lead to more problems down the road.
COVID-19 and the supply lag are not the sole reasons for the shortage. The world has seen a massive increase in demand for electronics. Even after a small falter in growth in 2019, 2020 saw a 5.4 per cent increase. This demand increase over the years have left manufacturers just ahead of demand, with COVID-19 disturbing the delicate balance of supply and demand.
Some experts forecast the wait for computer chips will head into next year, however, natural disasters, such as the cold snap in Texas that temporarily shut down chip production, could have their own effect.
The global chip shortage has shown how technology is completely integrated in our daily lives. However, it also demonstrates the precarious market we live in, where when problems occur, effects are large. The bottom line is, while the chip shortage right now is temporary, we should try to learn from it to prevent shortages like it in the future. So if you are ever shopping for cars, and notice that the promised electronic speed display is now analog, your Chevrolet Silverado is giving you one less mile per gallon than advertised, or that your iPhone is taking longer than expected to arrive, at least you know why.