The global chip shortage, also called the semiconductor shortage, seems to have snuck up on everyone in the world, even though it's something that should have been obvious.
Just about everything nowadays has silicon chips in it, from phones and computers to kitchen appliances and even cars. And all of this tech is becoming increasingly advanced, so the best processors aren't being reserved for just the latest gaming PC.
This isn't the first time this has happened: major chip shortages occurred on several occasions previously, including in 1988 due to high demand and in 2000 due to a shortage of several Intel products. And then again in 2011, when an earthquake in Japan caused a severe shortage of NAND memory and displays.
Chip shortages tend to happen due to either supply chain or human labor reasons. Yet rather than the industries that are so reliant on these chips overhauling the production process to make it less vulnerable to these shortages, it's largely been a case of business as usual.
And now that the latest shortage, which began in 2020, has the entire tech industry in its grasp, from cars to the latest and best graphics cards and video game consoles, everyone is suddenly asking what the global chip shortage is, why it's happening, and how long it will be before we see any improvement.
Some of those questions are easier to answer than others, but we've pulled together all the resources we can to help explain how we got here.
What is the global chip shortage?
A global chip shortage is a phenomenon that affects the semiconductor industry and the industries that rely on it when the former is unable to produce enough chips to satisfy the demand of the latter. These chips are vital to the tech industry at large, as they're used in just about every modern electronic device in the world.
Integrated circuits are created by interlaying tiny semiconducting nanoelectronics into layers of silicon. This invention revolutionized electronics – and the world – over the last 70 years, but it also created a thorny problem.
Unpredictable disruptions can result in massive shortages in nearly every consumer good that has electronics in it or employs them at some point in its production. This can affect everything from the quality of rail service in cities to the food getting to supermarkets. It goes well beyond impacting the availability of consumer goods like the best monitors, iPads, and computers.
We are currently in such a time of disruption. Consumers have experienced a shortage of just about everything over the past two years – so much so that it's a major driver of global price inflation on most consumer goods.
What caused the global chip shortage?
The main cause of this latest global chip shortage is the ongoing COVID-19 pandemic, which started in late 2019. There were two main results from this: disruptions in supply chains due to labor shortages and a 13% increase in global demand for PCs because of the switch to the work-from-home economy.
Within the computing industry, in particular, the shortage was further exacerbated by the rise of cryptocurrency. Graphics cards and CPUs have been scarce since those who mine these digital currencies added an unexpected source of demand for these components, making it even more difficult for the traditional consumer to find them.
Another cause was a series of droughts in Taiwan. Taiwan is one of the main centers of chip production in the world and home to the Taiwan Semiconductor Manufacturing Company (TSMC), one of the most important semiconductor suppliers. These droughts affected the production of ultrapure water, which is used to clean both the factories and the silicon wafers from which silicon chips are fabricated in volume.
Several other events that impacted the chip shortage include political tensions between the US and China, winter storms in Texas, fires in Japanese facilities, COVID-related factory shutdowns in Shanghai, and the ongoing Russia–Ukraine war.
When will the global chip shortage end?
Plenty of industry professionals from the likes of Intel and AMD have made projections on when the semiconductor industry will recover from this global chip shortage. The consensus is that it will last into 2023.
Intel’s CEO Pat Gelsinger stated that “Demand exploded to 20% year-over-year and disrupted supply chains created a very large gap...and that exploding demand has persisted,” which is something that will take years to fully recover from. Dell co-founder and CEO Michael Dell also believes the shortage will last for a few more years.
AMD’s CEO Lisa Su has a similar outlook, believing that the shortage will begin to alleviate in late 2022, as “the pandemic has just taken demand to a new level.” This was backed up by prediction reports from Gartner, an industry analytical firm, which stated that it would last throughout 2022 as well.
Meanwhile, TSMC and Quanta Computer – the sole suppliers for some of the best MacBook and Mac models – have been looking into opening new factories and moving production locations to increase chip production, but this is years away from helping ease the shortage. TSMC has also been trying to open new locations in the US, but it's been a similarly slow process.
There is hope, however, as some recent developments have helped alleviate the shortage. Graphics card and CPU stock, which has been a fairly accurate representation of the shortage status, has slowly recovered. One of the major reasons is due to the decline of Ethereum mining, as well as cryptocurrency in general.
Chip fabrication plants that were started before the pandemic are starting to come online, and some of the demand from work-from-home and hybrid workforces for new tech for their jobs has largely been satisfied and is unlikely to surge again the way it did in 2020.
With new tech products rolling out every year, however, and the increasing penetration of computers into previously analog products and services, it's impossible to tell how far from a full recovery we actually are, or if one is even possible.
