Demand is high but supply is low. Tom Merritt tells us five things we should know about the global microchip shortage.
Don’t think of it as a chip shortage, think of it as a chip demand boom! Not helping? Just want that gear you need to come down in price. Or ship at all?
Here are five things to know about the chip shortage.
- It’s been coming even before the pandemic. The proliferation of chips in everything, especially in Internet of Things devices, led investment firm TS Lombard to move “semiconductors ahead of oil as the world’s key commodity input for growth.”
- So, why not build more factories? Well the answer is both “we are” and “nobody wants them.” For chips that companies know will continue to be in demand, plants are being built. But chip fabs take years to build, so it’s not a quick fix. For older chips, like those used in cars, it’s not clearly profitable especially since the chip shortage will likely end someday.
- It’s not just about supply. Logistics is a mess, too. It turns out when you turn the world’s economy off then turn it back on again, it doesn’t clear up things like it does with your PC. Instead it throws off all the patterns of supply and demand and subsequently the rhythm of trains, planes and automobiles.
- Hoarding made it worse. Remember when you saw pictures of empty shelves where toilet paper used to be? There was actually plenty of toilet paper. But people worried they wouldn’t be able to get it so they started buying more than they usually would. Other people saw that and thought, well if all those people are buying it up, I better buy some, too. And suddenly you have a toilet paper shortage. The same thing happened with chips.
- Nobody knows when it will end. There are guesses. There are hopes. But the causes are too many and complex for an easy fix. So, anyone who tells you they for sure know the end is probably lying to you. But it will end. We just don’t know when.
So what do you do? Well, try not to hoard, but do look strategically at critical parts you may need and make arrangements. You can also adapt product strategies to the logistics reality. In other words, maybe change your design to take advantage of what you can get.
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