What is Causing The Microchip Shortage?

Stacked microchips

Microchip Shortage Causes

Microchips are part of almost everything in the digital age – cars, computers, your cell phone. If you’re really plugged in, that list can include your refrigerator, washing machine, lighting, and even security in your home or office.

And right now all of those small electronic parts are in short supply.

The 2020 pandemic has caused a global supply chain breakdown. Apple’s Tim Cook has indicated that both phone and tablet availability is well short of demand. A check at your local Staples probably shows a very low inventory of computers and laptops. Nissan has reported that they will produce half a million fewer vehicles this year. General Motors reportedly has tens of thousands of vehicles nearly completed – just waiting on the necessary chips to be installed.

Microchips, also called semiconductors, have been around since 1959 and have exponentially increased in use, especially since the 1980s. Today it is a $527.2 billion dollar industry (despite the shortages).

Microchips are used in over 100 billion devices on any given day; the rise in everyday use, as well as an increased demand for cryptocurrency mining, created a strong demand before the pandemic. 

The World (and Factory) Shutdown

When the world shut down because of the COVID-19 pandemic, many factories closed with it.  The result: supplies needed for chip manufacturing became unavailable. At the same time, increased demand for consumer electronics clogged the supply chain, leaving manufacturers struggling to make enough chips to meet the new levels of demand. Typically, microchip orders take six months to complete.  Now, production is more than a year behind for most orders.

When will it end?

According to IDC, production may have caught up to demand in 2023. After the catch-up, there could even be a glut, which could mean lower prices. In the meantime, prices will be higher and we can expect most consumers to keep and maintain their current electronic devices.