The rapid increase in the use of Internet of Things (IoT) devices has led to an increased need for semiconductors, which has contributed to the current worldwide chip shortage. Each device requires its own dedicated chip, and the Semiconductor Industry Association (SIA) reported that the third quarter of 2023 saw the highest-ever supply of semiconductor units in the market’s history.
We’ll go more into the root causes of the chip scarcity, potential outcomes, and how to proceed in this piece.
Whence Comes the Deficiency?
It has become necessary to use more chips in order to manufacture Internet of Things gadgets, with this need originating prior to 2023. This was due to the increased need for computers by employees to use in their homes as workplaces, and for people to have more and better entertainment alternatives when the epidemic broke out. Subsequently, further chips were required for communication platforms such as Zoom and video streaming services, as highlighted in a recent article published by TechRepublic.
Several more reasons made the situation much worse:
- There has been reluctance among chipmakers to establish new foundries. Given their high cost and the potential for fluctuating demand in the future, that decision is understandable. However, several major corporations such as Intel, Texas Instruments and Samsung have expansion plans in place.
- The chip supply has been limited because some manufacturers have been holding back. in the event that they run out and are unable to buy more.
- Issues in the supply chaindelays in chip supply to countries like the U.S. have been caused by unrest in Asia, where many semiconductor makers are based.
- China-Taiwan geopolitical tensionsIt’s possible that, the world’s largest chip manufacturer, may speed up, making it harder for the United States to import the components it requires.
- Construction slowed because of bad weather. in regions as diverse as Texas and Japan.
- Chip orders from automakers were cancelled. In the early stages of the epidemic, predictions were made that automobile sales would decline. As a result, chip manufacturers redirected their attention to consumer electronics.
Effects Right Away
Due to a rise in costs and scarcity of certain electronic components, manufacturers of electronic goods have had to reduce their production and utilize older components for their products. In an effort to combat this issue, a bill has been proposed in the US Congress that would allocate funds to support semiconductor manufacturing and research. As a consequence of the lack of specific chips, manufacturers have had to alter their strategies for product creation.
As a result of worsening circumstances, businesses may not be as particular about the chips they purchase, and may consequently end up with counterfeit products. TechRepublic has reported that due to the multiple hands that the components pass through, it can be challenging to identify the original supplier and verify their credentials.
When Is This Going to Stop?
Experts, research companies and professional groups are all making informed predictions about when the global chip scarcity will end, however there is no definitive answer yet. The Institute of Electrical and Electronics Engineers (IEEE) anticipates a full recovery of supplies by the end of 2023. Gartner’s estimates suggest that normal levels of supply will be restored by the second quarter of 2023, while Forrester believes the scarcity could last until at least 2023. Furthermore, the leader of one of the world’s major chip manufacturers has warned that it might take years to resolve the issue.
According to this article, Tesla CEO Elon Musk thinks we’ll finally see an end to the chip scarcity sometime in 2019:
Ways to React
Gartner’s recent statement suggests that firms employing chips may require some creativity in the upcoming months.
- Improve the ability to see where things are in the supply chain supply limitations and bottlenecks, and estimate when the crisis will ease, down to the silicon level and beyond.
- Cooperate with your spouse. We seek to collaborate with relevant organisations in order to be better positioned to negotiate with chip fabricators and/or external semiconductor assembly and testing services.
- Hold a close eye on lagging indicationsIn order to monitor changes and developments in the industry, we should use the inventory index and projected revenue growth in the semiconductor sector as leading indicators of current and future circumstances.
- Verify the legitimacy of a new chip supplier. Utilise distributors, resellers, and traders as strategic partners to mitigate risk and support the procurement of low-volume, high-priority components.
The TechRepublic article suggests that a shift in approach may be necessary for your organization should it transition from producing to employing items such as chips. Prioritizing components where failure would have serious repercussions should be paramount, but exploring alternative solutions (e.g. permitting employees to use their own devices temporarily) and obtaining used or refurnished parts from a different vendor should also be considered.
Your organization could benefit from the current situation by migrating some of its operations to the cloud, reducing the reliance on equipment with chip-enabled infrastructure. If you have a cloud deployment strategy in place but have yet to implement it, this could be an effective approach. Alternatively, you could delay investing in the necessary equipment until the economy recovers.
It’s Reason to Worry
Reports of a global shortage of chips have been circulated, leaving many to question if they should be concerned. The answer is likely affirmative, although this may depend on the type of business. Companies that rely on chips for their products may need to reduce their output, source new suppliers, or even consider producing their own chips.
The utilization of these items may necessitate the investigation of new equipment or processes to ensure that your company continues to operate efficiently. Your company’s management team must be prepared to exercise patience and be resourceful until the supply of chips is sufficient to meet demand once again.