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How we got to ‘chipaggedon’

Enrique Dans
Mar 2 · 3 min read

You’ve probably already come across news of the global chip shortage, responsible for problems in the manufacture of all kinds of products, from smartphones and other consumer electronics to automobiles.

The so-called chipaggedon is, in reality, the result of several factors: the pandemic lockdowns over the last year in China closed much of industry, including semiconductor factories, at a time when the demand for consumer electronics products has skyrocketed.

With the semiconductor factories closed and everybody suddenly confined to their homes, people started updating their computers, routers, webcams, tablets and many other devices, which were no longer sufficient when being used by parents working from home and children studying in their bedrooms. The increasing dependence on our electronic devices for more and more tasks, from work to study to entertainment, created a peak in demand that exhausted the stocks in many manufacturers’ warehouses.

At the same time, not all companies that needed to stock up on chip reserves to ensure the maintenance of their production lines managed to do so, which has led some, especially those that produce larger quantities of units and work with real-time lines such as Ford or Toyota, to close their factories and send workers home. Traditionally, car companies do not usually stock large quantities of supplies, and instead receive the components they need on a just-in-time basis. Others, such as Apple or many Chinese companies, did the opposite: stockpiling large quantities of chips in anticipation of supply difficulties, creating additional tensions in the market.

Matters have been made worse by the needless trade war launched by the Trump administration, which last December, by way of a parting shot, set its sights, in addition to companies like Huawei and the like as it had done previously, on several dozen more Chinese companies and also on large producers of electronic components like SMIC, creating even more supply difficulties. Replacing the type of components manufactured by these companies on a production line is not simple, and requires a process of adaptation and homologation that takes some time, or may not even be possible and may require a radical redesign.

In today’s world, production chains are, in many cases, intensely globalized. Launching a trade war unilaterally is reckless, which Donald Trump obviously undertook without a detailed analysis of the possible consequences. The Biden administration, driven primarily by the demands of US industry, is working on a draft executive order reviewing critical supply chains that affect the manufacturing of the country’s major companies, primarily those that require items such as microprocessors or high-capacity batteries in their products.

Problems with semiconductor supplies are expected to last at least until the beginning of next year, which is driving up the share prices of the companies that produce them and that know for sure that they have all their production sold out for a long time. The outcome is not exactly a surprise, and constitutes an interesting lesson in strategic leadership: in a globalized world, there are decisions that cannot be taken like some schoolyard bully who can do whatever he wants, whenever he wants: actions have consequences.

This article was previously published on Forbes.

(En español, aquí)

Enrique Dans

Written by

Professor of Innovation at IE Business School, blogger at enriquedans.com and Senior Contributor at Forbes

Enrique Dans

On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)

Enrique Dans

Written by

Professor of Innovation at IE Business School, blogger at enriquedans.com and Senior Contributor at Forbes

Enrique Dans

On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)

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