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The semiconductor chip shortage is real and not simply scarcity marketing. Find out why there is a chip shortage, the problems it is causing, and how businesses can cope with the situation.
Reports about semiconductor chips being in short supply are common. Although marketers are fond of saying that something is scarce in order to get people to buy products and services, this time the shortage is real. Here’s look at why there is a chip shortage, the problems it is causing, and how businesses can cope with the situation.
Reasons for the Chip Shortage
The Coronavirus Disease 2019 (COVID-19) pandemic is often blamed for the semiconductor chip shortage. However, it is not the only cause. There are other reasons why supply has not kept pace with demand recently. The pandemic was the match that made the existing powder keg of supply and demand issues explode into a full-blown shortage.
Here are the main reasons why the demand for chips is high while the supply is low:
High demand. For the past two decades, the demand for semiconductor chips has been steadily increasing. Worldwide sales grew from $204.4 billion in 2000 to $440.4 billion in 2020 — a compound annual growth rate of 3.91% per year. One reason for the steady increase is that chips are being incorporated into more types of products. Besides being an integral part of traditional electronic computing devices such as desktop computers, tablets, and smartphones, chips are now being integrated into goods that historically did not have them, including automobiles, appliances, televisions, and even toilets and toothbrushes. Plus, new types of electronic computing devices are being continually being developed for emerging markets such as Internet of Things (IoT) and artificial intelligence (AI).
In addition to the expected increase in demand for chips, there has also been an unexpected surge in demand due to the COVID-19 pandemic. When governments started issuing stay-at-home orders to slow the spread of the coronavirus, desktop computers, laptops, webcams, and other electronic devices started flying off the shelves. Businesses and consumers alike were purchasing them so that people could work, attend classes, communicate, and collaborate remotely. The empty shelves have, in turn, prompted electronic device manufacturers to order more chips than anticipated.
Low supply. The supply of semiconductor chips has not kept up with the high demand for a variety of reasons. The most notable ones include:
Problems Caused by the Chip Shortage
Virtually all companies will be affected by the semiconductor chip shortage. Manufacturers of chip-infused products are already feeling the effects. For example, Apple, Microsoft, and other electronics manufacturers are having problems getting the chips they need to build their devices. The same holds true for automakers and appliance manufacturers.
When manufacturers do not have the necessary semiconductor chips, they have to delay or slash production. For example, Toyota will be cutting production 40% percent in September 2021 because of the chip shortage. Manufacturers also tend to raise prices on the products that they do produce.
This new reality affects other companies big and small, no matter their industry or location. Businesses will likely have to spend more time searching for chip-infused products, as their first or second choice might not be available. And when they do find a suitable product that is in stock, they will likely have to pay more for it than in the past.
Considering that companies typically use many different types of chip-infused products — laptops, printers, routers, air conditioners, refrigerators, coffeemakers, and LED light bulbs, just to name a few — the impact of the chip shortage on their budgets could be significant, especially for small businesses. In addition, if they want a specific brand and model of a product, they might have to wait a long time for it to become available.
What Businesses Can Do to Cope
Industry experts have not reached a consensus about how long the semiconductor chip shortage will last. For example, Gartner expects the shortage to end by the second quarter of 2022. Forrester is more pessimistic, predicting it will last into 2023.
While these predictions differ, they both indicate that the shortage will not end for quite a while. Thus, companies might need to change the way they approach purchasing chip-infused goods. Here are some strategies you might consider trying when shopping for chip-infused products for your business:
You Can’t End Chip Shortage But You Can Minimize Its Impact
The semiconductor chip shortage is real. Although you can’t end the shortage, you can minimize its impact on your business by planning ahead and being sensible and flexible when purchasing chip-infused products. It also is important to keep your existing chip-infused products maintained to reduce the chance that they will need to be replaced. We can help keep your company’s computers, printers, routers, and other IT electronics well maintained and operating smoothly.
Business Photographers flickr photo by Rui de Matos shared under a Creative Commons (BY-SA) license