With the widespread adoption of Internet of Things (IoT) devices, the demand for semiconductors has surged, resulting in a global chip shortage. Given that a dedicated chip is required for each device, the Semiconductor Industry Association (SIA) noted that Q3 2023 witnessed the highest-ever supply of semiconductor units in the history of the market.
In this article, we’ll delve deeper into the underlying reasons for the chip shortage, possible consequences, and ways forward.
What’s Causing the Shortage?
The demand for more chips to produce Internet of Things devices increased even before 2023 due to various factors such as the need for employees to work from home and the desire for better entertainment options during the pandemic. As highlighted in a recent TechRepublic article, additional chips were subsequently required for communication platforms like Zoom and video streaming services.
Furthermore, several other factors exacerbated the situation:
Chip manufacturers have been hesitant to build new factories.
This decision is understandable considering the high costs involved and the possibility of future demand fluctuations. Nonetheless, several major corporations, such as Intel, Texas Instruments, and Samsung, have already planned to expand their operations.Some manufacturers have restricted the chip supply by holding back their inventory
in anticipation of potential shortages and the possibility of being unable to purchase more in the future.Supply chain disruptions
caused by unrest in Asia, home to numerous semiconductor manufacturers, have resulted in delays in chip supply to countries such as the U.S.Geopolitical tensions between China and Taiwan
could result in the world’s biggest chip manufacturer accelerating its production, which could make it more difficult for the United States to import the necessary components.Building projects were delayed due to adverse weather conditions
in various regions such as Texas and Japan.Automakers cancelled chip orders.
In the initial stages of the pandemic, it was anticipated that automobile sales would decrease. Consequently, chip manufacturers shifted their focus to consumer electronics, leading to cancelled orders from the auto industry.
Immediate Effects
The increase in costs and scarcity of electronic components forced manufacturers of electronic goods to decrease their production and use older components in their products. In response to this situation, a bill has been introduced in the US Congress to provide funds for semiconductor manufacturing and research. Due to the shortage of certain chips, manufacturers have had to adjust their product development strategies.
The deteriorating situation may lead businesses to be less discerning about the chips they acquire, resulting in the possibility of acquiring counterfeit products. TechRepublic noted that identifying the original supplier and validating their credentials can be difficult due to the numerous intermediaries involved in the distribution of these components.
When Will This Situation Resolve?
Multiple experts, research firms, and professional organizations have provided informed projections regarding the end of the global chip shortage, but there is currently no definitive answer. The Institute of Electrical and Electronics Engineers (IEEE) has predicted a complete recovery of supplies by the conclusion of 2023. Gartner’s estimates indicate that normal supply levels will be reinstated by Q2 2023, while Forrester believes the shortage may extend until at least 2023. Additionally, the head of one of the world’s major chip manufacturers has cautioned that resolving the issue may take years.
This article suggests that Tesla CEO Elon Musk predicted the end of the chip shortage sometime in 2019:
Response Strategies
Gartner’s recent announcement implies that companies utilizing chips may need to be innovative in the coming months.
Enhance supply chain visibility
to identify supply constraints and bottlenecks and forecast when the shortage will be resolved, including at the silicon level and beyond.Collaborate with partners.
We aim to work with relevant organizations to enhance our bargaining power with chip fabricators and/or external semiconductor assembly and testing services.Monitor lagging indicators closely.
To track shifts and advancements in the industry, we should utilize the inventory index and projected revenue growth in the semiconductor sector as leading indicators of present and future conditions.Validate the authenticity of a new chip supplier.
Partner with distributors, resellers, and traders to decrease risk and facilitate the acquisition of low-volume, high-priority components.
According to the TechRepublic article, companies transitioning from production to utilizing products like chips may require a change in strategy. Giving priority to components with significant consequences in the event of failure is crucial. Additionally, exploring alternative solutions such as allowing employees to utilize their personal devices temporarily and procuring used or reconditioned parts from another vendor should also be explored.
One potential advantage your company could gain from the current situation is shifting some of its operations to the cloud, minimizing reliance on equipment with chip-enabled infrastructure. If you have a cloud deployment plan but have not yet executed it, this may be a valuable approach. Alternatively, you could postpone investing in the required equipment until the economy rebounds.
A Cause for Concern
Reports of a worldwide chip shortage have raised concerns, prompting many to wonder if they should be anxious. The response is possibly yes, but this could vary depending on the industry. Businesses that depend on chips for their products may need to decrease production, find new suppliers, or even contemplate producing their own chips.
Incorporating these products may require exploring new equipment or processes to guarantee your organization operates efficiently. Your company’s management should be ready to exhibit patience and resourcefulness until the supply of chips is adequate to match demand once more.
