How The World Can Overcome Global Chip Shortage

The global chip shortage is not a mystery anymore. But how do we overcome it? Read on to find out.

A global chip shortage currently has the world in shambles. This predicament comes after the demand for semiconductors increased beyond its supply limit. The shortage is inimical to several industries as they fight to boost production. 

All items that need semiconductor chips are facing manufacturing issues. Companies as diverse as automotive, smartphones, electronics, and gaming have faced the brunt of this situation.

This shortage will last till 2022, according to analysts monitoring the global chip industry. Thus, resulting in extended supply disruptions across several sectors. But, there are still some others who think that the chip shortage could last even longer.

Global chip shortage
Image: CNBC

COVID-19 – A Catalyst For Global Chip Shortage

Covid-19 is usually blamed for the current chip shortages. But, let’s be honest, the pandemic is a reason thrown around for almost everything these days. 

The pandemic pushed semiconductor factories offline for a few months. Yet, worldwide chip production has been functioning for a long time. So, practically speaking, they should have been able to deal with the initial obstacle. But that wasn’t the case.

The pandemic caused supply chain disruptions. Moreover, there was an increase in consumer device sales due to work-from-home. This left chip makers to battle the global imbalance in the semiconductor industry. However, this problem goes deeper than just supply issues and Covid-19.

So, what is the real reason?

Systematic Problem

This global chip shortage highlights a systemic problem that won’t disappear easily. Companies need to reevaluate the semiconductor manufacturing supply chain. It is inflexible with a high barrier to entry. Moreover, quickly changing end markets worsen the consequences of oversupply. This current shortage is a result of chipmakers and their equipment suppliers’ decisions over a decade ago. 

Poor Planning is a Reason For Global Chip Shortage

Poor planning is another problem that led to the global chip shortage. There is no return on investment to develop foundries to meet the automaker’s demand, according to Mario Morales, program vice president at IDC. 

Automotive OEMs shut down during the second quarter of 2020. Thus, canceling orders from several supply chains. Several irritated suppliers found other markets that were still operating amid the pandemic.

Current Solutions To The Chip Shortage

The tech industry is already taking necessary measures to deal with the global chip shortage. One clear procedure is to invest in new and existing chip manufacturing infrastructure. Although several companies are doing this, Covid-19 has disturbed the flow of supply chains. For example, suppliers in China have stockpiled and restricted their exports due to an unstable market. 

Also, attempts to make the U.S. more self-sufficient in manufacturing electronics have not been successful. So, while investment is essential to maintain the global chip market, it might not be enough to bridge the gap for short-term production.

Integrating older chip technologies in the manufacturing and engineering aspect is also a good solution to overcome global chip shortage. Although these chips are not quite advanced, they are better than having no solution.

The pandemic has caused a sudden spike in demand for used equipment. Due to this, device manufacturers are working to produce new gadgets that use older chips. This has helped dilute the effect of this scarcity. But it is a frantic move for an industry that consistently needs to push forward to stay alive. 

Many individuals use mobile phones and gadgets daily. They could profit from something more instant – software that provides a solution for this hardware scarcity.

The lack of productivity has prevented the industry from adopting software as a solution to answer chip scarcity.  These solutions have a huge impact on leading to the current point in AI applications. And they will take us a lot further if we execute it correctly.

Global Chip Shortage Could Last Till 2023

According to Glenn O’Donnell, vice-president and research director at the advisory firm Forrester, high demand and restricted supplies can lead to this shortage lasting through 2022 and 2023. But, other experts believe that the chip shortage will last for 15-18 months.

Even though chip manufacturing companies have increased their production of semiconductors, experts believe that the demand will surpass supply till at least 2023. It is widely believed that the end of 2022 will provide more clarity on the issue. 

By the end of 2022, there will be a decrease in demand. It will help suppliers to focus on all the orders. But this decrease will be negligible. Thus, chip manufacturers need to increase production rates to overcome the shortage. If demand remains strong, chip shortage will continue even in 2023.

Image: CNBC

Final Thoughts – Will It Take a Long Time to Come up With a Solution?

The global chip shortage is going to be a problem for some time now. It can take almost two years for complex semiconductor production to start operating normally. So, adopt plans for a flexible supply chain. This includes research, development, and manufacturing. 

Companies like IBM have started to lay down the basis of a system to help develop the US microelectronics supply chain. In addition to this, they also focus on next-generation AI chips and innovation to cater to future needs.

Feel free to let us know if you have any queries, we will appreciate your feedback in the comments!

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