An economical chip that costs hardly a few dollars is causing hundreds of billions of dollars worth of losses for businesses worldwide. This acute chip shortage, used in the manufacturing of various products, including smartphones, vehicles, electronic appliances, and gadgets, has led to significant losses despite the rapidly rising demand for these products.
The global semiconductor chip supply shortage, which commenced during the pandemic, has now intensified significantly over the last few months. A report by Goldman Sachs revealed that over 170 key players across several industries are struggling to meet the rising demands due to this global chip supply shortage. With no solution in sight, the supply shortage has invariably started impacting major economies of the world. But why are these chips so crucial, and what has caused this massive shortage?
Semiconductor Chips: A Brief Overview
Semiconductor chips are mini electronic components that power the functions of several digital goods, from smartwatches to cell phones, cars, and washing machines, among others. With technological advancements on the rise in almost every sector, the demand for these chips is likely to increase further, given that they’re the lifeblood of billions of products, ranging from computers to data centers, tablets, laptops, smartphones, household appliances, vehicles, agri-tech, life-saving pharmaceutical devices, ATMs, and more.
Made from silicon, these semiconductor chips are excellent electricity conductors. They’re fitted into the microcircuits that power modern-day products. These chips enable several key functions, including operation control, high-end computing, input and output data management, data processing, wireless connectivity, sensing, and more. This means that these chips are an integral part of all emerging technologies, such as advanced wireless networks, quantum computing, artificial intelligence, blockchain applications, IoT, 5G, wearables, robotics, gaming, and more.
What Has Caused This Shortage?
A remote lifestyle induced by the pandemic has primarily led to a sharp increase in the demand for several products that are manufactured using these chips. After the invention of vaccines, the economic restart outpaced the initial expectations. When the demand for devices used for working, learning, and socializing remotely increased, it was caused the demand for semiconductors to surge. However, the manufacturing facilities, or FABS, weren’t adequately equipped to deal with the situation. All the fabs were already operating at nearly full capacity, with no room for production expansion. Moreover, many manufacturers had shifted their focus on producing bleeding edge chips with less focus on meeting the demands for simple, commoditized chips used in appliances and automobiles. The Manufacturing challenges were intensified by the lack of diversification geographically among the semiconductor chip fabs. The limited supply coupled with an unbalanced market share resulted in an inevitable supply chain disruption.
How Does This Chip Shortage Impact You?
The chip shortage directly impacts people as prices of appliances and goods significantly increase as a result of this global supply chain disruption. On the other hand, while this shortage is likely to cause economic disturbance for the next few years, it’s important to remember that this low capacity is temporary, whereas the high demand is promising, and will ultimately result in global economic expansion.
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