by Ayush Raj (’23) | October 11, 2021
From smartphones in our pockets to routers powering the internet to jet planes flying above us, chips, or semiconductors, are tiny little powerhouses, often unseen by their end users, that are used in almost all electronic devices to keep our digital world humming. They are the building blocks of modern computation, and the world needs large quantities of them.
In the past eighteen months, the demand for these key components of modern electronics has further risen as the world shifted to remote healthcare, working from home, and virtual learning, but the supply has not been able to keep up with the rising demand. The result? A chip shortage.
So what caused this supply-demand issue? Manufacturing semiconductors is complicated. Factories initially invest billions of dollars, employ skilled laborers, and spend weeks manufacturing each product.
According to The Washington Post, the world heavily relies on two Asian powerhouses for semiconductor manufacturing—Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea’s Samsung Electronics Company. When the pandemic hit, these factories that previously ran all day and night had to shut down or limit their operations, resulting in a serious supply-demand imbalance.
However, the pandemic is not the only cause of this chip shortage. TSMC’s chairman Mark Liu says that the uncertainty surrounding the relationship between the United States and China led some companies to double up on orders to secure inventory. Additionally, the February blizzards in Texas shut down Samsung’s semiconductor manufacturing plant in Austin, further exacerbating the shortage and costing the company $268 million.
The shortage of semiconductors is starving many industries; one of the hardest hit is automotive manufacturing. A single car uses around 100 to 120 chips that help ensure safety and provide accurate directions. According to the Wall Street Journal, automobile production has decreased by over seven million cars this year. Companies like Toyota slashed production by 40% in September 2021, while Ford has been furloughing employees for weeks. As the supply of new cars has dropped, the price of used cars has gone up.
Some experts like Intel’s CEO Pat Gelsinger expect this chip shortage to last for another two years. However, the Biden administration is working to solve this problem sooner.
The administration recently introduced the Chips for America Act, which would provide $52 billion for semiconductor research and development in the United States. The House passed the bill in June; however, the legislation is yet to be approved by the Senate.
The administration is also considering invoking the Defense Production Act. This Cold War-era national security law would require companies in the semiconductor supply chain to disclose inventory details. By tracking the volume of semiconductor sales through these reports, the government would have the ability to anticipate and plan for delays.
Bottom line—if you are in the market for a new car, laptop, printer, or TV in the next few months, expect to pay as much as 30% more compared to the summer of 2020. Similarly, if you are in the market for the new iPhone 13, there will likely be some delays. So unless you are in dire need of one of these gadgets, it may be best to wait it out until the supply of semiconductors recovers.