Have you tried to buy any hot new electronics in the last year? If you have, you have might noticed a few stocking issues (no, not that kind of stocking) with some of the most popular products, or perhaps those black Friday deals you’ve been dreaming about since last November haven’t quite lived up to your rabid expectations?
I remember trying to buy the new Xbox last November – just as the world was truly beginning to wake up to the realities of the chip shortage it now faces.
The console sold out immediately at the pre-order stage – with a RRP of £450, the console hit the second-hard market with a furious zeal, often starting at £750 and reaching as high as £1000.
Fools! I thought. Surely the console will restock in no time and no-one will be forced to pay scalper prices!
The consoles were, in fact, not restocked very quickly at all – even to this day, they’re still out of stock everywhere you might care to look.
So, what caused the world to run low on silicone chips, and why can’t we just make more?
The shortage came largely as a result of the pandemic, but the reasons for this are multifaceted.
The primary reason was the increase in demand for electronics lockdown brought with it. Our homes became our schools and places of work and thus, needed the appropriate equipment to suit these new purposes. Additionally, we spent a lot more time cooped up in our homes, prompting more investment in technology like TVs, games consoles, and speakers.
This sudden and unexpected increase in demand obviously brought with it an equally unexpected dip in production and back-stock availability.
On top of the increase in demand, several political and ecological issues have exacerbated the problem.
Before the pandemic even started, large US-based tech companies were swarming to buy up chips from China before the two countries’ trade sanctions came into effect. This led to shortages at the production level long before consumer demand caught up. Power outages in the stage of Texas, the US’ largest chip producer, have also led to a dip in domestic production.
Government interference in Taiwan – producer of over 60% of the world’s chips – has led to significantly decreased production there, too. In a bid to kerb to country’s water usage, the government has put limits on the amount businesses can use in their manufacturing process – this being an important component in chip production has led to a slump in output.
It’s increasingly hard to find an industry that doesn’t utilise semiconductor technology in some capacity, but those companies who sell or buy large quantities of technology-enabled products are the ones that have been hit the hardest by this shortage.
As we covered above, consumer electronics have been particularly badly hit, with both Microsoft and Sony still struggling to meet demand over a year after the release of their new consoles. Samsung, too, has had to delay the launch of its newest Galaxy Note tablet.
But the automotive industry, perhaps more than any other, is feeling the effects of the shortage acutely. Not only have car manufacturers had to contend with lockdowns restricting the production of regular parts in South East Asia, now chip shortages are bringing the production process to a standstill in some cases.
For Daimler, the world’s largest commercial vehicle maker, the chip shortage has left some cars on the production line awaiting just one part before they’re ready to be shipped. The company told Reuters it would sell a “mid-five-digit number” fewer vehicles this year than it would have if business was running as normal.
The chip shortage – like many things covid-related – has served to remind us of the fragility and complexity of the global supply chain network. To think one unassuming bat could have caused Microsoft’s latest games console to run short on stock for an entire year is nothing less than astounding.
In the (hopefully) soon-to-be post-pandemic world we find ourselves in, it will be interesting to see how industries adapt and flex to account for the possibility of global supply chain disruption. Will we see increased domestic production facilities? Maybe an end to just-in-time production practices? Or, perhaps human ingenuity will come up with an altogether different solution no one has yet foreseen.
As always, if you have any questions on the topics covered in today’s blog – or indeed any thoughts of your own – we’re always happy to have a conversation about you or your business, so get in touch!
Automakers have been practically immobilized for over a year, and the situation might get worse. A new outbreak of Covid in South East Asia, where most US automakers’ chip manufacturing is done, could hit the industry even harder next year.