Chip Shortage

There are so many things that have been affected by the global pandemic the world has been thrust into.  While the most tragic is the loss of life and health due to the virus, the secondary effects may be felt for years to come. Shortages of workers in manufacturing jobs have had a large negative effect on many industries. One of these industries has a greater effect on all the rest, and that is the manufacture of semiconductors or microchips. So many devices and appliances depend on these chips to function properly.

Supply and Demand

Just as we feel the world may be getting back to a tiny shred of normal, we are finding more and more things that the prices have skyrocketed on and supplies cannot meet demand at the current time. Lumber and building materials were the first things that really got our attention. Builders found that what costs them $100 in materials before, was now closer to $500. Another item in short supply is the computer chips that so many items in our daily lives depend on. We first noticed this in the automotive industry when new cars could not be made as quickly as before because the manufacture could not get the chips they needed to finish the builds. According to one local car dealer, when the new car deliveries come now, they are all already sold before they even pull on the lot.


Many industries such as smartphones and computers have a small supply of these items built up, but now even those are being depleted. Smartphones are a staple to many, for both personal and business use. The sales of new smartphones had a small dip during the start of the pandemic of 2020 and have already begun a rapid rise. Smartphone manufacturers kept their orders of chips steady throughout the pandemic leaving them in a slightly better position than some other industries. Researchers believe the shortage may lower the production of smartphones by as little as 10%. As stockpiled supplies are starting to dwindle the consumer will feel the effects either in raised costs or the lower availability of phones for purchase.


When the pandemic began many automobile manufacturers slowed down their ordering of these items in anticipation of a slowdown in sales. As things open again and sales start climbing, manufacturers in many industries are feeling the burn of the computer chip shortage. As the automotive sector tries to start production again, there is fierce competition for the semiconductor supply that is available. This combined with other material shortages, such as steel and plastics slows production to an almost standstill. So much so that several auto manufacturers had to halt or reduce production recently until they could acquire the materials they needed. The auto industry is predicted to lose about $110 billion in sales because of shortages.


Since November there has been a slight rise in chip production, only 12% over the previous quarter, with the hope that it will be up by 60% by the end of the year according to Taiwan Semiconductor, the largest foundry in the world.  Texas Instruments has also seen a lot of growth this year so far and more is expected. The Taiwan semiconductor fabrication plant in Austin was shut down for a little bit after a freak snowstorm that hit Texas in mid-February. While the same company’s factories in Vietnam were shut down when Coronavirus showed up again among its workers.


What does this mean for the tech industry and the many chip-dependent products that we sell or service as a managed tech company? I think we can expect to see some rise in costs and even scarcity of the availability of some products. Shortages of workers in manufacturing jobs have had a large negative effect on many industries, combined with the higher demand for products is a leading cause of this situation. While worker safety is important it has also shown it comes with its own price, and we all will pay extra for it. The reality is we need workers on the lines doing the jobs to get production up, and only when that happens can we get past this chip shortage that affects so much in our lives. It has been a hard road for every person and every business in 2020, and 2021 has been all about beginning the road back to normalcy or at least a new version of normal.  Contact us today to see how we can minimize the effects of the chip shortage in your business.

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Davis Advanced Technologies