What’s the Real Long-term Impact of the Global Chip Shortage?

Disruptions in the global supply chain have grown to become a major threat across industries. The severity of the worldwide chip shortage went up a notch in 2021, and even as we head into 2023, it looks as though manufacturers and consumers will continue feeling the impact. Even as the shortage subsides, businesses must prepare for the long-term impacts of this economic crisis.

Chipmaking was pioneered in the United States, and Intel dominated the global market for computer chips for decades. However, its influence has waned significantly in recent years due to Intel’s own sloppy actions. Besides, Asian companies – such as Samsung Electronics, Huawei Technologies, and Semiconductor Manufacturing International Corporation (SMIC) – have revamped their production of in-demand semiconductor chips in an attempt to address the shortage. However, that’s making it even more challenging for other firms to get hold of the chips.

Solving the chip shortage and preparing for a return to normalcy presents another challenge: labor shortage. It’s high time businesses reevaluate their systems and working procedures. Are there production models that need reevaluation? Is there still time to salvage the situation? How will automation help alleviate the real long-term impact of the shortage? Understanding what caused this shortage can help us find answers to these questions.

What Caused the Global Chip Shortage?

The global chip shortage is caused by a combination of factors. Most people agree that the COVID-19 pandemic played a huge role. But how did the pandemic lead to the scarcity of chips? Manufacturers anticipated a sharp decline in sales and purchases due to governments’ stay-at-home orders and widespread unemployment. Therefore, orders were put on hold because of the expected economic downturn, and chip makers were forced to redirect supplies to other customers.

Demand started increasing sooner than expected due to increased access to government economic stimulus and home needs, especially at a time when most people worked remotely and studied online. The latter accelerated the demand for laptops, smartphones, tablets, and other home devices that require microchips. With a low supply of semiconductors, several companies were left counting losses.

That crisis, coupled with the shutdowns of microchip manufacturing facilities and disruptions in the supply chain, significantly impacted the availability of semiconductor chips. While we may not be off the hook yet, experts project that global chip supply will return to “normal” in 2024.

The Impact of the Global Chip Shortage on Production and Consumers

The global chip shortage continues to affect a wide range of industries, and perhaps the most notable has been the halt in automotive production. Many carmakers have had to shut down their production lines due to chip shortages, resulting in reduced output and increased prices.

As the demand continues to outstrip supply, the automotive industry is no longer the only sector feeling the pinch. Other products impacted by semiconductor shortage include:

• Consumer electronics – The chip shortage has impacted the production of consumer electronics, such as smart devices and household appliances. Many companies have had to delay their electronic product launches or increased their prices due to the crisis. For example, Samsung – the world’s biggest computer-chip manufacturer – was forced to skip the launch of its next Galaxy Note back in 2021 to reorganize its lineup.
• Industrial equipment – The low supply of microchips has also led to reduced production of industrial equipment used in automation, robotics, and control systems. That eventually caused delays in the delivery of goods and increased costs for manufacturers.
• Telecommunications – Another industry affected by the chip crisis is telecommunications. Declined supply of equipment and infrastructure has delayed the deployment of new networks and services.
• Gaming industry – With barely any chip available for production, gaming console manufacturers have had to reduce production, and that hampers the release of new models and increased the costs of the existing ones.
• Medical devices – The chip shortage has also disrupted the production of critical medical devices, such as diagnostic equipment, ventilators, and other devices crucial for the healthcare industry.

The Impact on Consumers

Because of the disrupted production lines across various sectors, the average consumer on the street is also bound to feel the impact of the chip shortage directly or indirectly.

One of the most notable impacts is the increase in prices of consumer electronics, such as laptops, smartphones, and consoles. Many manufacturers are struggling to secure enough chips to meet demand. As a result, they have no other option but to raise prices to compensate for the increased production costs.

The delayed production of consumer products means in-market shoppers have to wait for an extended time to purchase the latest products, such as new cars. Moreover, the crisis has led to stock shortages of specific products, making it difficult for consumers to find the products they want to purchase.

What to Expect with the Global Chip Shortage in 2023

The short supply of semiconductor chips is expected to continue in 2023 and potentially beyond. The COVID-19 pandemic has fueled the demand for electronics that rely on chips to function and disrupted the supply chain. Because the demand will remain high and supply will be limited, this shortage is expected to last through 2023.

For instance, the manufacture of low-margin processors, such as the ones used in smart toasters to toast bread or to weigh clothes in a washing machine has been declining. And while most retailers are still able to access these products currently, chances are high that they may face issues in the coming months.

Furthermore, trends in remote working and online learning are expected to continue. The demand for PCs, which feature some of the most advanced chips, is expected to soften a bit but not a lot. On the other hand, data centers, which have facilities full of computer servers, are expected to buy more chips. Combined with the continued growth in cryptocurrency mining and cloud computing, the boom in chip demand is only expected to continue. The automotive industry, one of the most severely affected sectors, is expected to continue facing challenges this year.

Companies are also expected to expand their investments in their production facilities to boost their chip production capacity, although it will take time for these efforts to bring a balance in supply and demand. As a result, the costs of electronics will remain high while stock shortages are likely to continue.

The semiconductor supply-chain crisis is also expected to have a domino effect throughout the global economy, resulting in delays in the delivery of goods and increased production costs for manufacturers. The supply chain disruption caused by the pandemic and the microchip shortage are also likely to force some businesses to shut down.

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