Chip Shortage Explained: How We Got Here And Why It Persists

The continuous global chip shortage is restricting production and sales in a variety of industries, including smartphones, medical gadgets, and, most notably, automobiles. As the shortage remains present, we examine where it began, why is there a chip shortage at all,  and when will the chip shortage end. Let’s have a look at the details.

What Is a Chip Shortage?

A chip, also known as a semiconductor, is a critical element that drives everything from smartphones and automobiles to dishwashers, refrigerators, and other electronics.

A global chip scarcity resulted from the Covid-19 pandemic, which was worsened by an increase in demand for electronics. Individuals and corporations began purchasing new computers and servers to accommodate remote workers and homeschooling children. Consequently, despite a drop in worldwide semiconductor revenue between 2018 and 2019, rose by around 6.5 percent in 2020.

Manufacturers failed to produce enough chips to match the increased demand, resulting in a backlog that grew over time.

Another problem was the closure of ports, which sometimes lasted months. The issue continued even after the ports reopened, as many portions of the logistics supply chain lack the power to manage port congestion.

Chip Shortage Causes

Noticeably, memory chip prices rose in 2017 and 2018, but fell in 2019 and 2020 due to weak consumption from the PC and smartphone sectors. As a result, leading DRAM and NAND chipmakers, such as Samsung, SK Hynix, and Micron Technology (NASDAQ:MU), reduced their production in the run-up to the pandemic. In other words, when the pandemic began last year, the market was already shaky. 

The pandemic, on the other hand, briefly halted semiconductor exports as the worldwide market for new mobile devices, PCs, and data center improvements soared in response to remote work, virtual education, and other at-home trends.

What are the Consequences of the Shortage?

The shortfall of semiconductors will almost certainly have a direct effect on consumers. It has wreaked havoc on the global supply chain and strangled electronic manufacturing. Chip costs are increasing, and as a result, electronic gadget prices are rising as well.

Early on, companies such as Apple and Samsung began stockpiling. Even back then, Apple had production challenges with the iPhone 13. The brand took a big hit in September-October, with a 20 percent drop in production compared to the prior forecast. If larger organizations are experiencing so many problems, one can only imagine how troubled smaller enterprises are.

The supply and demand imbalance is rapidly widening. This gap has begun to show itself in the rising pricing of technology, greater wait times, and the unavailability of items, among other things.

What Steps are Being Taken to Address the Global Chip Shortage?

Chip manufacturers and governments are seeking to expand supply chain capacity as consumption for semiconductors is expected to rise as more industries undergo digital transformation.

However, it is widely acknowledged that chip supply chains must diversify in order to reduce dependency on Taiwan and South Korea. Hence, more and more companies are starting to invest in the production of chips.

From the spring of 2020 through the year of 2021, the semiconductor industry had one of its biggest shortages, thanks to the COVID-19 pandemic and a surge in demand during the recovery.

If you are a small business facing a similar issue, Access is here to give you some peace of mind. We provide all the necessary business computers, laptops, servers, storage and printers to various businesses.

Hurry up to contact us, if you are in urgent need to purchase electronics for your team.