For nearly two years now, the world has been experiencing a semiconductor shortage. Despite major initiatives aimed at boosting production, however, the impact of COVID-19 on chip-dependent industries appears to run much deeper than initially anticipated. And though most experts anticipate that the chip shortage will wane next year, some –– from Intel and Forrester most notably –– actually see it stretching into 2023.
Interestingly though, electronics manufacturers aren’t responding as the automotive industry did in 2020. Instead of reducing or halting production completely, they’re pivoting toward making less advanced versions of their current offerings. This begs the following questions: How did we get here? When will it end? And, most importantly — what does this mean for consumers?
Recapping the shortage
Manufacturing chips is a tricky business. It can take up to 3 months to make just a single batch of semiconductors, meaning companies like Apple or Toyota have to place orders as much as a year in advance. Since demand for consumer products is usually easy to predict, this timeline normally isn’t a major issue. However, despite electronics manufacturers having time to adjust in the early days of the pandemic, the preparations they made turned out to be exactly the opposite of what they needed.
Expecting a slowed economy and consumer spending, many companies decreased the sizes of their orders — only to see remote work and education spark surging demand for consumer electronics. This in addition to governments around the world stimulating their economies meant that consumers, in many cases, had both the motivation and the means to spend. As a result, chip manufacturers were faced with an exponentially increasing backlog. This, plus a lack of raw materials reaching the world’s few major chip factories, led to the prolonged shortage we now see.
How manufacturers are responding
Multiple initiatives to boost production have popped up, the most recent of which comes from the Texas Samsung plant we wrote about last month. The city of Taylor — where the plant will be built — is even helping Samsung along by offering tax cuts of up to 90% for its first decade of operations. However, it takes a long time to build a semiconductor factory, and many planned facilities won’t be operational until at least 2024.
In the meantime, companies are shifting production to older, low-tech models, focusing on those that can work on printed circuit boards with a much simpler PCB layout. Such layouts involve less intricate design and often fewer and/or simpler materials. As a consequence of this simplification, products too are being scaled back, in a sense. Fancy in-car features like touchscreens and parking assist are momentarily being phased out, and manufacturers of household appliances are beginning to feel the pinch, as well. To compensate, many companies are offering credit to consumers who buy these lower-tech models, which can be used to install excluded features once parts are made available.
What this means for consumers
To date, the chip shortage has caused the price of consumer electronics to skyrocket. Voltage regulators now cost $70 instead of 50 cents, and GPUs are selling at up to 95% more than average. With manufacturers opting to produce less feature-rich models, this may also mean you’ll end up paying more for less.
The good news is that startups specializing in everything from cloud computing to Bitcoin mining are working on streamlining the chip production process — and investors are pouring in billions to fund these initiatives. With chips being vital to most of the devices used today, the hunt for innovative solutions is extensive and fast-paced. So even if this current shortage won’t end soon, it’s likely that future issues of this sort can be prevented. Ultimately however, you might have to rethink buying those swanky tech items you’ve been itching to get your hands on over the holidays.