Reasons for a chip shortage in the world

chip shortage in the world

Years before would be unthinkable to see a chip shortage in the world, but there have been many factors since the previous years that could explain what is going on: Covid-19, industries stopped for a while, weather conditions and accumulation of containers.

Table of contents

What is a chip?
Where are chips used?
COVID-19 situation and Chip shortage
Accumulation of containers
Few companies producing chips in the world
What industries are affected by the chip shortage?
When will the chip shortage end?
Does chip shortage push to innovate?
How is DeepSea Developments handling the chip shortage?

What is a chip?

Before we go deeper into the causes of the chip shortage, we need to understand what a chip is and where it is used.

Chips are also known as microchips or semiconductors, they are the brains of electronic products. They are very small and contain billions of transistors. They are not easy to build, it takes many days, resources and the work of different experts.

Where are chips used?

Well, every electronic product or device that has a screen needs a chip. So, you would find chips in cars, TVs, video consoles, smartphones, drones, cameras, among others.

COVID-19 situation and Chip shortage

During 2020 many car companies decided to stop buying components for their cars, since many people were in the house and wouldn’t buy a car. So, the chip making companies reduced the production of chips for cars and started producing more chips for consumer electronics.

Why did they change to consumer electronics? Since many people had to stay at home, the demand for laptops, TVs, and other products for home entertainment increased.

Once in a while the chip factories would close due to quarantine restrictions, this also caused less chip production in general.

Accumulation of containers

World trade didn’t stop completely. But since it didn’t work as usual last year, many ports were closed and caused the accumulation of containers. It’s not an easy task to solve this situation, and there are still a lot of products waiting to be shipped.

This problem has caused a container shortage. There is a chaos in logistics, and the shipping costs have risen fivefold. Just a few clients have been able to pay the high shipping costs, and this will translate into higher prices for the final customer.

Few companies producing chips in the world

Another reason that explains the chip shortage, there are few companies producing chips in the world, in fact, Taiwan and Korea control the biggest share of chip production today.

The US had a big percentage of chip production 30 years before (37%), sadly, this number went down to 12% in 2020.

To make things worse, there have been many natural disasters and weather conditions that have affected companies that produce chips.
Floods in China, India, Germany. Wildfires and deep freeze in some places of the US.

What industries are affected by the chip shortage?

Chip shortage in the automotive industry

As we said before, the chip shortage is affecting mostly the automotive industry. During the pandemic, the car companies reduced drastically their production and purchases of chips.

According to Alixpartners, “the global auto industry will produce 1.5 million to 5 million fewer vehicles this year (2021) than originally planned because of the supply constraints.”

On the other hand, companies like Samsung, Apple, and Sony have said they will have to postpone product releases. For example, the Play Station 5 will be in short supply until next year.

The hardware production industry has also been affected by the chip shortage. For example, the Raspberry Pi increased its price. This increase may be temporary, but is affecting the industry. Others like ST electronics (especially STM32), microchip, and texas instruments are experiencing a global shortage.

When will the chip shortage end?

Different experts and analysts say the companies that produce chips are working at full capacity to balance the shortage, however, chip supply and shipment problems would normalize probably by the end of 2022.

On the other hand, Jean-Marc Chery, the CEO of Chipmaker STMicro said the chip shortage will end by early 2023. Also, the CEO of Intel, Patrick Gelsinger, said in an interview the shortage problem will last until 2023.

Does chip shortage push to innovate?

Chip shortage is generating a big problem for many industries, however, it is also an opportunity to innovate. Covid-19 pandemic pushed many companies to adopt new technologies. And the scarcity of microchips is another proof that companies need to have alternatives for their products.

Amazingly, not everything is bad news in the automotive industry. According to Forbes, “Tesla published a solid set of delivery numbers for Q3 2021 late last week, noting that it had delivered a record 241,300 vehicles for the quarter, a sequential increase of 20% and a year-over-year increase of almost 73%.”

This proves that it is possible to overcome this situation if the companies and CEOs look for solutions to innovate their products and devices. Tesla has had great results because their vehicles count on modern architecture, and it allows them to use more modern chips that companies are producing (for consumer electronics), which may not be the case for other automotive enterprises. Also, Tesla’s engineers have been able to use alternative chips, write out new software on them and use them in the cars. This is a demonstration on how innovation can be a game changer for a company nowadays.

How is DeepSea Developments handling the chip shortage?

DeepSea Developments has had to design new products and devices considering the availability of chips in the market. That implies we need to be experts in finding and choosing the best options for our customers’ designs. In other words, their products will use available components, and chip shortage won’t affect their businesses.

We have to be innovative during this chip situation. We can do the design of a product considering a plan A, B and C. This is possible because of our expertise building PCB, hardware design and development.

Another strategy we use to help our customers face chip shortage is to run a quick proof of concept or soft prototyping phase. This way we can let them know as soon as possible the options they could implement in their devices, and help them by innovating their designs.

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