The Chip Shortage Is Here
The beginning of the pandemic caused the forces of markets and supply chains to fundamentally re-align. In capital markets, cashflow squeezes caused a liquidity crunch, with manufacturing & retail facilities shutting down and needing time to adapt to a new normal. What we experienced was a massive supply chain disruption, and although we are starting to put 2020 behind us, we’re still seeing shockwaves being sent through supply chains in critical sectors.
The world is currently facing a global chip shortage, a phenomenon that may send western, post-pandemic recovery efforts into a dismal state of affairs. Everything from tech, to auto, to consumer goods, and defense could feel the potential impact.
Companies began experiencing CPU shortages in early 2020. In the latter half of the year, it was hit with chipset shortages. The B460 and H410 chipsets supplies were reportedly depleted through the end of last year, and availability of the Z590 chipset was also constrained.
Carmakers are among the hardest hit by these shortages. In the age of yesteryear, cars were not essentially robots with advanced software systems like they are today. The pandemic also saw stronger demand pulls as consumers gobbled up televisions, laptops, and game consoles to “soldier-on” through their time in isolation. The pulls of increase demand are becoming apparent with retailers themselves having product shortages and significantly increased delivery times. China’s auto industry also significantly drove up demand with its increased production of smart electric vehicles — putting even more of a strain on the designated automotive supply.
Over the past 8 years the demand for chips from the auto sector has increased dramatically. Cars have gotten smarter; from advanced infotainment and driver assistance systems, to outright automation systems, it has driven a massive surge in sector demand — requiring more and more chips to manufacture automobiles. While a car in nature is a mechanical machine, the industry can no longer turn back the clock to that simpler time when critical systems, such as brakes and steering, didn’t require microchips.
As a result, car manufacturers across the globe are shutting down plants and slowing production due to the shortages. General Motors, Ford, Toyota, Honda, and Volkswagen have all announced plant shutdowns and reductions in production as a result of the shortage.
The shortage is even unifying Congress to act, as representatives’ expressed concerns about the impact to their constituencies and the potential implications to defense. Just like cars, weapons systems have gotten smarter as well. Several major contracts were put in place in the last year to strengthen the defense of allies abroad — many with systems that require these critical components to function.
A one-hour power outage at Micron’s factory in Taiwan resulted in millions of lost revenue and lost product, taking the company days to recover. That factory accounts for 10% of the worlds DRAM production; add the disruption of a pandemic into the mix, it begins to illustrate fragility of global chip supply chains.
Analysts had begun predicting a potential shortage towards the end of Q2 last year — making the assessment that due to pandemic-related, production cycle disruptions, the impact would be felt hardest in the first 6 months of 2021. Now it has become evident the shortage has arrived.
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