The Global Chip Shortage: How Did We Get Here? Where Are We Headed? What Now?

This article is part of the 2022 Electronic Design Forecast issue

What you’ll learn:

• How did the global shortage of semiconductor chips come to exist?
• How can business and home buyers cope today?
• How might environmental concerns, technological development, and regulatory action influence the crisis in the years ahead?

The global shortage of semiconductor chips—about one year old and still going strong—is the product of a variety of interrelated factors:

• There are technological drivers. These include the rise of artificial-intelligence (AI) and machine-learning (ML) technologies. Also, as more people worked remotely full-time, they needed more advanced computers at home to complete complex tasks. This flipped the market, from prioritizing lightweight, travel-sized devices for home use to favoring more powerful devices.
• Economic factors have played a role in the chip shortage. Economies that aren’t tied to particular countries have grown in favor. As people moved toward cryptocurrency, they started to buy devices that could perform the very complex computations needed to mine the various coins. Both of these trends also have increased the demand for semiconductor chips.
• Social factors also are at play. As the pandemic restricted traditional, face-to-face interactions, virtual communities became more important to people. For many, gaming communities became a major source of socializing. This shift led to increased demand for high-end gaming machines, which in turn led to an unexpected demand for high-end graphics processing units (GPUs).

All of the changes add up to many, many more end users competing for products with high-end central processing units (CPUs) and GPUs. Manufacturers across industries could not have anticipated this convergence of so many trends and have struggled to meet demand. Now, some manufacturers are doubling their orders of chips to keep up.

So, here we are. Get used to it. Given that none of these trends is likely to reverse any time soon, we’re going to be here for a while.

In the Short Term: Act Prudently But Quickly

There are ways to cope with this situation. First, whether you’re buying for business or for personal use, you need to move quickly when—or if—the products that you want become available. And this doesn’t just apply to high-end products. Web cameras are relatively simple pieces of technology, but even they are scarce because of the shortage of semiconductor chips.

People also should carefully assess if they need the highest-end devices for the work they’re doing. For example, word processing requires relatively little computational power, so it would not require as powerful a device. Buyers also should be wary of lower-quality products in the marketplace. Since demand is so high, chips that don’t perform properly or as intended may begin entering into the market.

Overall, buyers will need to be cautious, but swift. If they hesitate too long, the products they need may disappear, with little chance of returning quickly. If they act hastily, they may end up with products unsuitable for their projects.

Over the Long Haul: More Hard Questions

As the shortage continues, perhaps for the rest of this decade, questions continue to arise—across users, industry, governments, and other stakeholders:

How might environmental factors further affect chip production? The environment plays a vital role for manufacturing. The fabrication of semiconductor chips takes place in extreme conditions. Very small particle counts are required, and clean water is necessary in many parts of the process. Pollution from fires and a lack of suitable water in certain areas could greatly affect production.

What technological innovations can help relieve the situation? Substantial amounts of raw silicon are consumed in the production of chips—not all of which is required. Industrializing new techniques for slicing silicon into thinner wafers could increase the efficiency of the process, resulting in many more chips from the same amount of silicon. However, these techniques haven’t been fully developed, so the prospect of putting new capacity online and immediately producing new nodes is unlikely.

What regulation might influence the chip shortage (and are governments well-suited to solve this kind of problem, anyway)? For example, will certain nations alter their import/export regulations to help ensure their citizens can maintain access to high-demand products?

Probably the most important question looming around the chip shortage moving forward is, which industries will be prioritized in getting the chips that they need?

Although this crisis is widespread, not everyone is experiencing it in the same severity. What the silicon is being used for and, possibly, how profitable that usage is for suppliers seem to be key determinants in how much of a chip shortage a given industry is experiencing. A pecking order has taken shape.

“Food Chain” Prioritization

So far, it appears that the companies manufacturing GPUs and CPUs necessary for innovative AI and ML technologies are at the top of the food chain of priority. These manufacturers’ high margins mean they’re more likely to get priority from suppliers.

The automotive industry is a good example of mid-range users, as their somewhat lower margins put them somewhere in the middle of the semiconductor chip food chain. Modern vehicles contain many electronics, especially driving aids, such as advanced driver-assistance systems (ADAS), autonomous driving systems (ADS), and digital cockpits, all of which are facilitated by camera, radar, and other sensors.

Since such features are no longer limited to high-end models, the industry’s need for semiconductor chips today is tremendous and growing. However, companies decreased orders when the global pandemic hit, and they have struggled to readjust their manufacturing chains moving forward.

At the bottom of this food chain are the manufacturers whose products consume low levels of silicon. A prominent example is the medical industry, which doesn’t require high volumes of chips but does demand an extremely high degree of reliability. Portions of the market at this low end of the food chain, which also include companies producing devices and sensors for the Internet of Things (IoT), may struggle to get the chips they need for their products.

As we deal with this situation over the next years, we must think about all of the different levels of the semiconductor food chain, to ensure the shortage doesn’t create new problems for our most vital industries—and humanity at large. The truth is that some industries may have lower profitability but higher benefit to humanity. As things are playing out thus far, we’re at risk of losing access to products that we count on for our wellbeing—from medical equipment to automobiles—because other market segments are more profitable to the chip producers.

That possibility begs additional hard, important questions: When this shortage is finally over, what is the history we want to be written about it, and who gets to decide?

Read more articles in the 2022 Electronic Design Forecast issue