Do you like jokes about “chipping”? Still, there’s a crisis of microchips worldwide

    07 Nov 2021

    A new economic crisis has already touched you – try to order a PlayStation 5, a new iPhone, or car! A shortage of electronic equipment threatens the world.

    Let’s get to know what happens, thanks to Babel’s explanation.

    Today, almost everything works on chips – from an electric toothbrush to a car. Since last year, the world has faced a shortage of them. It happened because of the trade war between the United States and China and the shutdown of factories because of the coronavirus pandemic. This year, natural disasters have been added – drought, severe frosts, and fires in the regions where there are factories that produce chips. Supply disruptions began at manufacturers of laptops, smartphones, and home appliances. The automotive industry was severely hit – BMW, Mercedes, Toyota, and other companies even had to shut down factories. Everything can be adjusted, even according to the most optimistic forecasts, not before 2023. 

    Why are chips in short supply?

    There are not so many chip companies globally. Twenty years ago, there were about 30 of them in the world. They decided that it was more profitable and cheaper to outsource production to other companies. So do even technology giants like AMD (US company, one of the largest chips manufacturers). Since 2009, it does not produce chips itself but orders from other companies based on its technologies.

    In recent decades, the demand for chips has grown, and the number of their manufacturers has decreased.

    Currently, about 80% of chips are made in Asian countries – Taiwan, South Korea, China, Malaysia, Singapore. The rest is produced in Europe and the United States. The leading manufacturers are Taiwan’s Taiwan Semiconductor Manufacturing Company (TSMC), with more than 50% of the global market, and South Korea’s Samsung, with about 17%.

    It all started in 2018, with the trade war between the United States and China. At that time, American companies were banned from ordering chips from Chinese manufacturers. In 2020, the coronavirus pandemic shut down factories that made chips, first in China and then worldwide. Until the middle of 2020, the companies still had chips stocks, but by the end of the year, they ran out. And by the beginning of 2021, the demand for chips was already 30% higher than the supply.

    Only the factories resumed work – natural disasters intervened. For example, there has been a drought in Taiwan, and chip factories need a lot of water to cool systems. Because of this, production had to be reduced. One of Japan’s largest factories, which made conductors, was badly damaged by the fire and was rebuilt for four months. Severe frosts in Texas

    Texas residents have received unusually large electricity bills. Due to abnormal frosts, energy companies have raised prices. Texas residents have received unusually large electricity bills. Due to uncommon frosts, energy companies have raised prices led to power outages. Because of this, several factories stopped making chips for Samsung and other companies.

    Who has suffered from the crisis?

    Everyone suffered; first – manufacturers of electronic devices. Due to the lockdown in 2020, people started working and studying remotely. This required smartphones, webcams, and other gadgets. And, of course, TVs, set-top boxes, and all sorts of gaming hardware. And then, the rate of bitcoin went up sharply, which increased the demand for video cards – they are used to exchange cryptocurrency.

    The automotive industry suffered the most. At the beginning of the pandemic and lockdown, carmakers canceled their orders for chips; they expected sales to fall. And the demand only grew, but it was too late – there was a long queue for chips. Now the delivery time of new chips can take up to 40 weeks. During 2020, they, like other manufacturers, still managed stocks, but by the end of the year, it was over. In January 2021, analysts predicted that the automotive industry would lose about $60 billion a year; in May, the forecast was adjusted to $110. By September, the figure had risen to $ 210 billion in losses and 7.7 million unpublished vehicles.

    From the middle of 2021, due to the lack of chips, the plants of BMW, Volkswagen, Skoda and other significant manufacturers stopped. And in the UK in July, cars were made as much as in 1956. Even Japan’s Toyota cut production by 40% in September. And this is even though the company had a larger stock of chips than competitors. Since the end of September, General Motors has been transporting Chevrolet Silverado pickups to the wasteland directly from the assembly line, waiting for chips. In the US, everything is so bad with new cars that dealers have to rent a car to have something to show in car dealerships.

    Mercedes and Renault began to save their chips for more expensive models. Other companies, such as Tesla, have postponed the release of their new cars altogether.

    Next will be the shortage of laptops, smartphones and appliances. Global computer sales grew until the fall of 2021. Now go into decline. All because the companies have run out of chip stocks. Acer said it could meet only half of the world’s demand for its laptops. There is a similar situation on the market – you can still buy mid-range or premium-class laptops, but it’s easier to find models that are harder to find. Manufacturers have decided to follow the example of automakers and use scarce chips in more expensive models.

    It was virtually impossible to buy the PlayStation 5 game console after its release in November 2020. The company promised to solve the problem by the second half of 2021, but in August, the deadline was moved to March 2022. Apple will release 10 million fewer new iPhones 13 due to a shortage of chips.

    Samsung, one of the world’s largest smartphone makers, has cut shipments by 20%. By the spring of this year, the shortage of chips has reached some manufacturers of home appliances. They make refrigerators, washing machines, microwaves.

    Does this mean that prices will also rise?

    Demand for chips has grown, and the world’s largest maker, Taiwan’s TSMC, has raised prices by 20%. This means that products that use chips are becoming more expensive.

    Modern cars are stuffed with chips no less than a spaceship. If in the 1970s electronics accounted for only 5% of the cost of a car, now this figure is approaching 50%. Toyota, Nissan, and Renault cars have become more expensive since April. Prices for Mercedes and BMW have risen, and the companies are not going to reduce them, even when the chip crisis is over.

    The average price of a new car in the United States rose to a record $43 thousand, and prices for used cars jumped sharply – an average of about $25 thousand.

    When will the chip shortage end?

    Forecasts are different. The Taiwanese government promises to overcome the crisis with the supply of microchips for cars by the end of this year. However, the automakers themselves do not particularly believe in this. The heads of Volkswagen and Mercedes believe that the deficit will remain at least until 2023.

    About the same time is mentioned by the main manufacturer of chips TSMC. In the meantime, the company is preparing to make extra profits from sales and plans to spend $100 billion to increase capacity in its plants and produce even more chips. One of the world’s leading electronics developers, the American company Intel, is also going to build its own new chip factories.

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    After China ordered to provide coal supplies in excess of quotas, there was a sharp increase in gas and electricity prices in Europe, whose market was already in fever due to the reduction of supplies from Russia. You may read more here.

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