Global microchip shortage could last two years

Microchips are used in more than just computers. As more devices have become digitized, from toothbrushes to tumble dryers, the demand for semiconductor chips has continued to increase.

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The increase in demand, coupled with production limitations and a trade war, has created a shortage of the chips that could last two years.

At the start of the coronavirus pandemic, suppliers scaled back production, only to find that demand for electronic devices increase, especially as more students and employees were forced to attend classes or work from home.

In addition, a series of freak incidents also impacted production, The Wall Street Journal reported. There was a plant fire in Japan; freezing weather throughout the southern U.S. that closed production facilities where chips are made; and a drought in Taiwan, where a majority of chips are made, is also a threat to production since a large volume of water is needed to make them. Then, as tensions between the U.S. and China grew, some companies stockpiled supply.

“If you asked me, ‘what keeps me up at night?,’ right now is this supply chain crisis we’re having in the semiconductor industry,” Cristiano Amon, CEO of Qualcomm, the world’s largest mobile chipmaker, told CNET. “It is causing a lot of stress as the supply chain was not prepared to deal with the growth.”

The microchip shortage first started to impact car makers earlier this year. Automakers reduced and canceled orders when the pandemic started, only to find scarce supply available when they needed them for production. In response to the scarcity, car manufacturers reduced employee hours and cut production of certain vehicles, CNET reported.

Samsung said the shortage is impacting its appliance and television production, the Financial Times reported.

“We are discussing with retailers and major channels about supply plans so that we are able to allocate the components to the products that have more urgency or higher priority in terms of supply,” Ben Suh, head of Samsung’s investor relations, said on a call with analysts last week.

Tensions and restrictions between the U.S. and China prompted some companies to stockpile chips, the Wall Street Journal reported. Huawei, one of the world’s largest cellphone makers, uses chips in a range of products, and accumulated supply in anticipation of U.S. export restrictions.

“Now (Chinese companies) are stockpiling for one month, three months, or even six months, and they have disrupted the whole system,” Eric Xu, deputy chairman of Huawei, told the Wall Street Journal.

Electronics giant LG said it is “closely monitoring the situation, as no manufacturer can be free of the problem if it gets prolonged,” The Financial Times reported.

The shortage could last two years, according to Pat Gelsinger, CEO of Intel, the largest chip maker in the U.S.

“I think we have a couple of years until we catch up to this surging demand across every aspect of the business,” Gelsinger told CBS News. “COVID showed that the global supply chain of chips is fragile and unable to react quickly to changes in demand. One reason: fabs (fabrication facilities) are wildly expensive to build, furbish, and maintain.”

The majority of microchip manufacturing, about 75%, is done in Asia, CBS News reported. In April, the White House announced plans to invest $50 billion in U.S. production of semiconductors as part of a $2.3 billion infrastructure plan, the Wall Street Journal reported.

“This is a big, critical industry and we want more of it on American soil; the jobs that we want in America, the control of our long term technology future, and as we’ve also said, the disruptions in the supply chain,” Gelsinger said.