Last Updated on May 8, 2023 by Kevin Chen
The disruption of the IC supply chain has been immense and many industries have been highly affected. Probably you are aware that most automakers reported that they were unable to meet their production targets mainly because of the global chip shortage.
What about the chip industry itself? How has the shortage affected the IC market and usage? Have the players in the industry taken any necessary measures to protect themselves from the shortage?
The global shortage of chips has stopped the production of some vehicles and in the best case scenarios has delayed the production.
This implies that some companies had to lay off employees who were specializing in specific production segments. On the other hand, consumers had to be kept on the waiting list since the production was not able to match the demand of some products.
These are just some highlights. Read on as we explore the effects of global chip shortage on the IC industry, and the new opportunities that have cropped up from the shortage.
Impact of the chip shortage on the IC industry
There is no doubt that the IC industry has not been spared by the global chip shortage. Here are some of the ways in which the industry has been impacted
Delays in the production of IC
This is the most obvious impact of the chip shortage on the IC industry. We have witnessed a massive delay in the manufacturing of the integrated circuits.
Chips and microchips are essential in the manufacturing of the microchips and other electronic components.
So, if there is a shortage of the chip, the production of the ICs will definitely take a big hit.
Manufacturers will not have the capacity to produce many chips that will meet the demand in the market.
Let’s look at the scenario where the demand for the chips is higher than the production capacity. There will definitely be a shortage.
The delay in the chip production could also be due to the fact that manufacturers were forced to change their production schedules as a way of coping with the surge in demand.
Increased cost of chips
Well, this was expected- the demand for the chips exceeded the production. Manufacturers had no option but to hike the price of the chips.
In other words, the global chip shortage led to an increase in the cost of the integrated circuits.
This not only affected the integrated circuits but also all the components that make up the IC.
Al the players in the IC industry are feeling the impact of high prices on the chips. Most manufacturers weer left with no option but to push to the consumers the load of the high prices. In other words, the devices in which these chips are used had to come at a high cost.
Disruption of the supply chain
The supply IC chain is among the worst affected field by the global shortage of chips. Keep in mind that an issue at one stage or level will trickle down to all other aspects. This is why the supply chain has borne the heaviest brunt.
The IC supply chain is quite interconnected. For example, different electronic components are sourced from different suppliers before we have a final chip.
Failure to get a single component would mean that the whole supply chain will break down.. A manufacturer wont proceed with the production unless they get the capacitor that they need for the IC.
Another supply issue that has been realized from the shortage is the reliance on certain manufacturers hence giving them some level of monopoly privileges when it comes to the producing and supplying integrated circuits.
The impact spread to other industries that depend on IC
While we have discussed how the IC industry has been heavily affected by the chip shortage, other industries have also become casualties to the shortage.
The automotive industry suffered the shortage of the chips. Various automakers opted to cut the production and while at the same time there was significant increase of the price of vehicles.
Electronic consumer goods such as home appliances and smartphones were also affected by the shortage.
In some cases, there was delay in production and in other cases manufacturers opted to do away with specific models of products.
Increased competition
When the resources are less, there will be a heightened competition among the players.
Manufacturers of the different electronic products are forced to seek audience with the few chip suppliers in the market.
Such tight competition means that players will have to deploy dirty games to get the full attention of the manufacturers.
For example, companies are trying to outbid each other and on the other hand chip suppliers are finding themselves in tight places.
One impact of the competition is some companies are looking for alternative ways to outdo the broken supply chain.
There have been cases of companies opting to produce their own chips to avoid the frustration that comes wit competing for the few suppliers.
Opportunities created by the chip shortage
Image siource Freepik
We have looked at the negative impact of global chip shortage on the IC industry. But all is not gloom, there are perfect opportunities that we should grab. Here are some of them.
Increased research and innovation
Necessity is the mother of invention. This is something that has come out of chip shortage in the IC industry.
To counter the impact of the shortage, some companies and even government agencies have been seeking ways to remain afloat despite the shortage.
In some countries, governments have allocated adequate resources aimed towards boosting the manufacturing of chips for domestic use. The IC industry has been receiving more attention after the shortage.
IC companies have also increased their funding aimed for research and innovation of the chips. Most of these innovations are meant to cushion the companies from chip shortage now and in the near future.
Emergence of the new manufacturing technologies
To counter the shortage, chip manufacturers worked on various solutions to increase the production of chips.
New and advanced technologies have been developed to address this problem.
There has been minimal reliance on the manual methods of manufacturing chips. Emphasis has been on the automation as it is known for speed and accuracy.
Expansion of the supply chain
Reliance on a few chip manufacturers and suppliers has proven to be a risky affair. To prevent such from occurring again, we are seeing new players entering into the supply chain. Some are coming in as chip producers while others as IC chip suppliers and distributors.
We hope that the expansion of the supply chain will prevent any possibilities of future shortage.
In the quest for the supply chain expansion, we have seen strategic partnerships being developed between different players in the industry.
What caused the chip shortage?
While analyzing the impact of chip shortage in the IC industry, it will be prudent to know the root cause of this problem.
The most probable answer to this question is Covid 19 pandemic. To date, it is always blamed for the massive shortage of chips.
But what role did Covid play in relation to the chip shortage?
First, it led to a decline in the production rate as most countries imposed lockdown measures. This means that workers were unable to go to the factories to produce the chips.
Another way is chip manufacturers had predicted a decline of the purchasing by consumers. In other words, it was assumed that less people will spend money buying electronic gadgets.
Such predictions didn’t turn out as expected. Some financial reprieves such as stimulus checks motivated customers to buy new electronic gadgets. The demand exceeded the supply of the chips.
Chip manufacturers have put up some efforts to contain the current high demand and by the second quarter of 2023 , there are signs of a balanced demand vs supply of chips.
When will the chip shortage come to an end?
With the challenges caused by the chip shortage, there is no doubt that everyone is hoping for an end to this problem. Will the chip shortage end very soon or should we brace ourselves for a long ride?
According to J.P. Morgan Research, chip shortage is expected to end in the late 2023 or early 2024. However, it is predicted that the end will happen in phases whereby some types of chips will be more abundant than others.
Shortage of chips used in the automotive industry is likely to end early.
Let’s hope that the chip shortage will be a thing of the past so that everything goes back to normal.
Even as we wait, it will be a smart move to take advantage of the opportunities that come with the shortage.
For instance, we should continue putting efforts on the research and innovation of IC chips.
Chip shortage has been a major issue in the IC industry. While it has had numerous negative impacts, it has also presented new opportunities in the industry. It will be smart to take advantage of such opportunities if you are a player in the chip industry.
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