A chip, also known as a semiconductor, is an essential part that fuels a wide range of electronic devices, from smartphones and cars to washing machines, refrigerators, and even electric toothbrushes.

Even before Covid-19, their demand had greatly outstripped their supply, but the lockdowns brought on by the pandemic drove chip manufacturing plants all across the world to close. The supply chain was overrun with demand for devices as more and more individuals began working from home. As producers struggled to produce enough chips to meet the escalating demand, a backlog started to grow and grow.

Another factor was ports closing, sometimes for months. The issue persisted even after the ports were reopened because several components of the transportation supply chain are unable to manage port congestion.

The lead time, or the time between ordering and delivery of semiconductors, climbed from four days to 22.3 weeks last month as compared to October, according to an analysis by Susquehanna Financial Group. The difference is at its widest level since the company started collecting data in 2017.

Why does it persist?

It is difficult and time-consuming to establish chip foundries, therefore products cannot be quickly increased even in the face of an enormous demand. The construction of new chip fabrication facilities has been announced by businesses including Intel, Samsung, and Taiwan Semiconductor Manufacturing Company (TSMC) in recent months. Due to these businesses placing more orders and keeping more goods on hand, the scarcity may endure longer as a result.

What are the effects of the shortage?

The lack of semiconductors will undoubtedly affect customers. It has hampered the production of electronics and affected the world supply chain. Chip costs are rising, which has an impact on how much electronic equipment costs.

Early on, companies like Apple and Samsung started to stockpile. Even then, Apple ran into production problems with the iPhone 13. The brand suffered greatly as a result of a 20% decrease in production from September to October compared to the original forecast. One can only imagine how distressed the smaller businesses would be if the larger corporations were dealing with so many problems.

The disparity between supply and demand is widening quickly. This disparity has begun to show itself in the rising prices of technology, the lengthening of wait times, the unavailability of items, and other things. Smartphones may have been spared due to stockpiling, but the automobile industry has been severely impacted by the shortfall.

The crisis has most severely affected the auto industry. Most vehicle firms anticipated a recession in the epidemic’s early stages, and some even broke long-term agreements out of fear. Then, microchip foundries modified their production processes to create components for electronic products. Automakers were consequently placed in a tough situation.

Despite increased local demand, passenger vehicle sales in November decreased 18.6% to 215,626 units. According to the Society of Indian Automobile Manufacturers, sales decreased by double digits for the third month in a row. Sales of two-wheelers as a whole fell precipitously by 34% last month, reaching their lowest level in 11 years. Sales of three-wheelers fell to a historic low after 19 years.

When will the issue be resolved?

The timing of the shortage’s end is a subject of conflicting predictions. A supplier to Apple, Foxconn, has predicted that the deficit may continue through the second half of 2019. ‘On a broader scale within 2022,’ according to Infineon, a significant provider of automotive semiconductors, supply will not be able to keep up with demand.

Conclusion:

According to Patrick Gelsinger, CEO of Intel, the scarcity may continue for another two years. On the other side, a Chinese industry association for the automotive sector has announced that the worst of the worldwide car chip crisis is past.