© Kadmy / Adobe Stock
Recent signs suggest the global chip shortage is starting to ease but only in certain sectors. News of a worldwide shortage of chips in March 2022 sent shockwaves through the industry.
The post-Covid economic climate was blamed for the problems, as production had slowed down, or stopped completely, during the pandemic. The shortage worsened because more people were at home trying to keep themselves entertained, so there was an increase in demand for electronics.
Tech giants increased production to keep up with the booming needs of a nation of bored consumers, causing the number of chips to deplete further. As the existing stock drained, the industry was unable to manufacture enough extra chips to counter this.
In March, it was revealed Europe and the United States were proactively tackling the shortages. A new European Chips Act was passed to subsidise the development of new chip plants, as many electronics companies and other manufacturers depended on Asia for their supplies.
US President Joe Biden signed the new CHIPS and Science Act on 9th August to boost domestic computer chip manufacturing. It coincided with a private investment package that will increase the United States’ market share of production from below 2% to up to 10% over the next decade.
Previously, industry insiders said they had no firm idea of when the global chip shortage would end but speculated it might improve by the end of the year.
Is the chip shortage getting better?
According to the latest reports, the chip shortage is starting to ease in some sectors. Taiwan-based chip maker, TSMC (producer of some of the world’s most advanced silicon) recently announced record profits of £6.5 billion for the past quarter – up by 76% from the year before. This reflected the extra chips they were now manufacturing, following the scarcities of the pandemic.
However, the manufacturer also said shrinking consumer demand, due to the global economic crisis, will reduce future profits. While a downturn in sales of electronic devices will mean an increase in stocks of chips, in the longer term, it will lead to a loss of income for chip manufacturers, as consumers reduce their spending.
The unprecedented demand during the pandemic for laptops, mobile phones and gaming consoles, combined with supply chain issues and lockdowns, caused a critical shortage of some chips. Now, growing inflation and increased economic uncertainty have led to high prices for certain chips finally decreasing as shortages ease.
As manufacturers of high-end consumer chips start to see orders drying up, due to declining sales prospects, international chip-making companies such as South Korean giant SK Hynix are even considering reducing their 2023 capital expenditure by a significant amount as a result of the decline in consumer demand.
The cost of DRAM memory chips has dropped by 10.6% between April and July, while the price of GPUs needed for gaming PCs and AI computations has gone down by 17% in one month.
Where are there still chip shortages?
The turnaround in availability is not across the board. Lead times for the advanced chips needed for telecommunications, medical devices and cyber security systems is around one year, compared with a pre-pandemic average of around 27 weeks.
Automotive companies were badly impacted by the pandemic because initially, they cancelled orders for components across the board. The lockdowns and travel bans meant consumers’ cars were left idle and nobody wanted a new vehicle.
Then, when the lockdowns were lifted, there was a sudden surge in demand that vehicle manufacturers couldn’t meet. Modern cars have thousands of chips, with more advanced in-car software packing even greater computing power.
Automobile manufacturers are still suffering shortages of chips, as well as problems with the supply chain for raw materials, such as steel and resin. Many end products need multiple semiconductor components sourced from all over the world, including China.
Industry experts fear the emergence of a new Covid BA5 variant in China might lead to further lockdowns. This could hamper the production of chips again, leading to more uncertainty about future capacity and potential restrictions on chip exports.
The current slowing economy means there’s a risk of some suppliers experiencing financial distress, which could lead to a breakdown of the supply chain and further shortages ahead. Companies requiring chips are urged to collaborate closely with their suppliers to keep abreast of the situation and avoid any shocks in the future.
Semiconductor chips play a big part in everyone’s life. Without them, many of today’s tech devices that we take for granted simply couldn’t function.
Sellectronics provides PCB assembly services, including rapid prototyping and new product introduction, to ensure the setup is fully functional before completing a full production run. This avoids large-scale costly PCB wastage by recognising potential design issues and picking up any errors in the circuit layout.
Please contact us for further details of our products and PCB assembly services.