Microchips Causing Macro Problems: Causes & Effects of the Semiconductor Shortage

A shortage of microchips is impacting industries across the globe. Microchips are embedded in many commonplace electronics—this includes everything from smart fridges to smartphones. Signs of the chip shortage are everywhere: in empty car lots, electronic device backorders, and inflated prices. 

After the COVID-19 pandemic began in 2020, a semiconductor shortage quickly followed. As classes moved online and offices moved to tables in the dining room, sheltered life caused an increase in demand for devices that simulate a sense of community. Sales of computers, game consoles, and other electronics swelled. The same stay-at-home and social distancing orders that closed offices and schools soon shut down factories, further delaying the production of machines and devices already hindered by the microchip shortage. 

The same issue struck the auto industry. Automakers slowed production due to economic uncertainty from the pandemic. As the economy began to replenish, the auto industry and others found themselves at the back end of a long list of microchip requests. Many have been forced to cancel new model releases are currently facing difficulty selling their existing stock. Due to the semiconductor shortages, car prices have gone through the roof, undoubtedly putting a damper on many consumers looking for a car sale this past Labor Day weekend.

While coronavirus mutations such as the delta variant perpetuate the issues outlined above, the pandemic isn’t the only thing prolonging the chip shortage. In February 2021, a storm hit Texas, causing multiple semiconductor plants to close, and in March, a Japanese factory shut down production due to a fire. Though various solutions are floating around, it is hard to say when this large-scale problem will be solved conclusively.

Factories are doing their best to clear back orders, but consumer demand for electronics has not subsided. Developments in the internet of things (IoT) require the use of chips in more devices. 5G network rollouts require compatibility updates in phones. As the use of digital machines and devices increases, so will the need for semiconductors. 

President Biden is urging Congress to invest in the semiconductor industry. According to NBC News, Biden’s proposal suggests setting aside $50 billion so that the US can eventually supply its own semiconductors. Currently, the US relies on manufacturers in Japan, South Korea, Taiwan, and China. While this is a great initiative, it can take 6-7 years to build and begin operating a microchip factory. Furthermore, these factories will likely require semiconductors to function in the first place.

China is putting chip production at the forefront of its 5-year plan. China’s goal is to meet the majority of its microchip needs with chips made in China. Just last week, The Wall Street Journal reported, “. . . China’s largest chipmaker said it is teaming up with the Shanghai government to build an $8.87 billion chip production line in the city, furthering China’s ambitions for semiconductor self-sufficiency in the middle of a global chip shortage.”  

If its current trajectory continues, microchip demand will not slow down anytime soon. Kif Leswing, a technology reporter for CNBC, described semiconductors’ necessity with this metaphor: “If software is eating the world, chips are the teeth.” Modern life runs on microchips, so modern organizations must work against the microchip shortage. While a short-term solution is metering demand, the long-term solution is yet to be found.

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