Why the Foundation of Tech is at Risk : The Global Chip Shortage
In the past year there has been news of how a lack of chips can actually hurt industries. A global shortage of computer chips. Continues hampering the auto industry and creating vehicle shortages. What began with temporary manufacturing disruptions at the onset of the COVID-19 pandemic has led to a series of supply breakdowns across multiple industries in 2021. Specifically, demand is now high for a variety of goods that use chips, and this gap in supply and demand has become known as the global chip shortage. Before we dive into the causes of the shortage, we must know…
What even is a Chip?
Also called an integrated circuit, IC, or computer chip, a modern chip is a network of electronic circuits printed on and embedded in a flat piece of silicon. Silicon is a semiconductor, meaning it can carry an electrical current between highly conductive elements like metals and less conductive materials like ceramics. There is no “the” chip, in fact there’s different types of chips. The production of chips typically starts with silicon, which is made out of crystals. And on top of that, you basically introduce the structures that make out of the silicon a particular chip, be it a logic chip that does calculations, chips that do memory operations, convert voltages, images for cameras. That’s a lot of different types of chips, but they’re made in a similar way. Think of it like thin layers placed on top of each other in a highly precise manner. Just imagine cutting and stacking thin sheets of paper at a scale of mere billionths of a meter. Your scissors basically need to be able to cut in a nanometer range. And the next piece of paper you’ll put on top of that, again, in a nanometer range, you have to position it exactly correctly above the one before.
Effects of the Chip Shortage has on Industries
We’ve seen the chip shortage hit many industries from consumer electronics to cars to computer parts. In a nutshell, demand for products with chips has risen since the start of the pandemic, and chip manufacturers have been struggling to meet this demand. As a result, customers that can’t get the products they want either have to wait or pay more. These buyers have waited hours for a chance to buy a computer component called a GPU. They’re harder to get because of the shortage. Majority of consumers are eager to buy GPUs for a multitude of reasons but once stocks arrive, it sells out as soon as it comes out, but yet they still travel, waiting to see if it’s there. Early mornings and late nights. That’s the sacrifice that most people here are willing to make. That should tell you everything you need to know about the shortages. GPUs, or graphics processing units, are computer components that render visuals. They are great for gaming and solving complex computations. They also incorporate sophisticated chips to perform these tasks.
Why is it so hard to keep up with demand ?
You would think increased demand would lead manufacturers to start up more factories. Well, it’s not that easy either. The factories where chips are manufactured can take years and billions of dollars to build. It’s not about the construction cost that much, that is typically less than 20%, but the semiconductor tools that you need to manufacture these chips, these are the ones that account for 80%-plus of the cost. You could build a much smaller factory, surely, but it would not be financially viable. Further complicating things, a single company, TSMC, makes roughly a quarter of the world’s chips and manufacturers from two Asian countries, South Korea and Taiwan make the majority of chips, but disruptions in one region or with just one manufacturer can impact thousands of products. It is a real global industry. Nobody did think a lot about, for example, having something based in the US to produce only for the US. And then the pandemic came, we needed another laptop. We needed another camera and microphone. The demand for semiconductors actually almost doubled within one year. So there was a shift in what we buy increasing demand for some products, but beyond just chips, we’re seeing shipping and supply chain issues in everything from lumber to metals like steel and aluminum, and shipping internationally now takes longer and has become more expensive since 2020. And this intensified after a massive blockage in the Suez Canal in March was followed by many other port backups. As of October 2021, there were more than 100 shipping containers off the California coast just waiting in line to be offloaded, and in the US there’s a shortage of truck drivers at the moment, further aggravating the problem at the ports.
How long will this be a problem ?
Fortunately, we’re already seeing some improvements. What you can do in the short-term is just try to really, really optimize your operations to just get more output. Other solutions are prioritizing chips based on demand, and altering product designs to use the available chips, but experts believe more production facilities will be needed in the future. Artificial intelligence needs semiconductors, right? Smart things. I would call it the decade of semiconductors is now in front of us.
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J.P. Morgan Chase. (2022, August 11). How to begin building a credit history. https://www.jpmorgan.com/insights/research/supply-chain-chip-shortage
Tong, G. C. (2022, July 20). Global chip shortage is not over and the slowdown is “going to bite,” analyst says. CNBC.https://www.cnbc.com/2022/07/20/global-chip-shortage-continues-amid-inflation-rising-rates-and-war-idc.html
Why The Chips Are Down: Explaining the Global Chip Shortage | Jabil. (n.d.). Jabil.com. https://www.jabil.com/blog/global-chip-shortages.html