Why we’re talking about . . .

The chip shortage

The global chip crunch is hurting industry and consumers. How can it be fixed?

The chip shortage

Reporting a doubling of online sales this week, Dixons Carphone boss Alex Baldock claimed the Covid crisis “has caused a permanent shift to people buying more tech”, said BBC Business. Great news for electrical goods retailers and Big Tech – provided they can get their hands on the chips. 

The acute global shortage of semi-conductors that began to bite earlier this year shows no sign of easing, said Chaim Gartenberg on The Verge. Gamers can’t get the latest Xbox Series X or PS5 consoles. But it reaches far beyond that. “Car companies are being hit worst” – some are struggling to avoid factory closures. Even “home appliances might start to see issues with supply”. Intel CEO Pat Gelsinger reckons the situation will get worse before it gets better. “I don’t expect the chip industry” to be “back to a healthy supply-demand situation until 2023”, he said. 

The problem isn’t a decline in production, said Asa Fitch in The Wall Street Journal. On the contrary, the number of chips sold globally in April reached nearly 100 billion – a record-breaking figure – up from 73 billion shipped just before the pandemic in January 2020, “reflecting how the industry has ramped up to meet demand”. 

Numerous factors have driven up the need for chips – from the record number of laptops bought to enable WFH, to high demand for medical devices during the pandemic. The roll-out of superfast 5G mobile networks has prompted sales of new smartphones to take advantage of the speed boost. Gadget price increases aren’t yet a major factor to the “broader uptick in inflation”, but some consumers are starting to feel the pinch. 

“Never seen anything like it,” tweeted Tesla boss Elon Musk, of the chip famine recently. The upshot for his customers is a $2,500 (£1,816) increase in Model 3 prices over three months. Musk’s other big passion, crypto-currencies, are also fuelling inflation, said The Economist – particularly of graphics chips used in “mining”. 

The obvious question, said Bloomberg, is why not just make more chips? The answer is an industry inside joke: “It’s not rocket science, it’s much more difficult.” It takes years, and billions of dollars, to build a semiconductor factory, or “fab” – and “the economics are so brutal” that you can lose massively if your “expertise is a fraction behind the competition”. That’s why so many chip designers outsource to Asia, where makers like Taiwan’s TSMC have a stranglehold. Expect that to change as resource nationalism kicks in, said Andrew Blum in Time. The US and other Western countries are racing to build “fabs” to counter “China’s ambitions of becoming the global semiconductor champion”. In the world of geopolitics, “chips are the new oil”.

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