When Will The Chip Shortage End?

Elon Musk has predicted that the global chip shortage will be over by 2022. His prediction is based on the fact that multiple semiconductor plants are either planned or under construction. Let us dive into the blog to understand if the global chip shortage will really be over by 2022, or could even last longer.

The semiconductor chip crisis, which has hampered numerous industries, particularly the auto industry, is unlikely to be resolved very soon.

The spread of the Delta variant, combined with poor vaccination rates in several ASEAN economies and China’s zero-tolerance Covid stance, has pushed governments to impose restrictions and order industrial or port closures, according to a recent analysis by Nomura.

Apart from that, in August, a lack of raw materials and container availability prolonged lead times — the time between ordering a chip and receiving it. This is especially true in nations like Vietnam, South Korea, and China, which are part of manufacturing supply networks.

This comes at a time when most chip stocks throughout the world are already running low. Input shortages and low stock, according to Nomura, will likely result in production cuts and delayed shipments in the September 2021 quarter.

Why Is There A Chip Shortage In 2021?

Because of the high demand for semiconductor microchips in a range of electronic products, as well as the influence of Covid-19 on factory production, there is a backlog of orders.

Even under normal circumstances, these microchips take a long time to manufacture, and any delay might be disastrous. So, it’s no wonder that there’s been a sudden and severe shortage in the current condition.

Orders for the microchips abruptly ceased when the epidemic struck, and fewer people wanted to purchase an automobile. Meanwhile, tech businesses were purchasing lots of microchips to cope with the demand for products such as the new PlayStation 5, which have always been famed for their popularity.

As carmakers resumed manufacturing after coronavirus limitations were lifted, they found themselves at the back of the line for microchips.

Competition To Acquire Chips

According to Gartner, the personal computer market has risen by 32 percent year over year in Q1 2021 for the first time in 20 years. With the rise in video conferencing, streaming, and gaming, demand for data centers has risen as well. All of this occurred during a period when the supply of chips was depleted.

Another little-discussed reason driving the semiconductor issue is cryptocurrency mining, which has resulted in a surge in chip purchases.

Given the bullish crypto market, cryptocurrency miners, who weren’t even on the radar a few years ago, are now willing to spend as much money as they need on chips.

Non-Stop Disruptions To Chip Production

The semiconductor industry is facing new problems and upheavals now and then.

Taiwan, the world’s semiconductor manufacturing capital, is experiencing its worst drought in 50 years. Because water is such a vital component in chip manufacture, the drought has had an impact.

Then there was the big power outage in Texas, which impacted many fabricators, and, as a result, the auto industry in the United States was affected.

Due to an increase in COVID-19 instances and lockdowns in Malaysia, a significant center for chip testing and packaging, supplies are likely to be severely impacted.

The chip demand-supply imbalance has increased as a result of these disruptions, which have occurred one after the other.

In addition, numerous semiconductor firms have gone public. Because they are closely scrutinized for how they allocate funds, they have become cautious about making new investments.

In the semiconductor sector, capacity expansion takes time as well. Factory equipment is made only by a small number of providers.

Auto Prices To Remain High Through 2023

Automakers are under no compulsion to lower their automobile prices because consumer demand for cars is still high. Automakers have directed scarce computer chips to higher-priced models — pickup trucks and huge SUVs, for example — in order to conserve them, driving up their average prices.

The epidemic that erupted early last year is at the foundation of the computer chip shortage that is plaguing the car and other industries. To help stop the virus from spreading, American automakers were forced to close plants for several weeks. Orders for semiconductors were canceled by some component manufacturers. At the same time, demand for computers, tablets, and gaming consoles soared as tens of millions of people hunkered down at home.

Consumer demand for automobiles remained strong as vehicle production began. However, chip manufacturers had turned their focus to consumer goods, resulting in a shortage of weather-resistant automotive-grade chips.

Then, just as auto chip manufacturing was beginning to recover in late spring, the highly contagious Delta variety hit Malaysia and other Asian countries where chips and other auto parts are manufactured.

How Will The Chip Shortage Crisis End?

While chip manufacturers have increased their efforts to make more semiconductors, analysts believe demand will continue to outstrip supply until at least 2023. However, the final quarter of FY22 will give us a better idea of what the final result will be.

A drop in demand is common in the fourth quarter of the year, which may help suppliers catch up on orders. However, the slowdown will be minor, and chipmakers would need to drastically increase capacity to compensate for the deficit.

On the other side, if demand remains strong in the fourth quarter, the chip shortfall might last until 2023.

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