Global Shortage of Semiconductors Likely to Persist Due to Excessive Demand

The world has been facing a shortage of semiconductors ever since the first lockdown was imposed across the world due to the rising cases of coronavirus. The problem of shortage of semiconductors was initially thought to be temporary as there was a shortage due to disruption in the production process when the companies/industries were shut down for a while in order to curb the spread of the COVID-19 pandemic.

The problem, however, persisted even after the production resumed and reached its usual levels post-lockdown, which could be attributed to the excessive demand for semiconductors or the chips, the “brain” within every electronic device in the world. This demand is reportedly extremely high due to the surging demand for electronic devices, especially televisions, smartphones, and laptops, among other products.

The demand for these electronic devices has been triggered by the pandemic as well as the rising practice of ‘work from home’ culture, which has accelerated the demand for these devices as everything is now online, be it work or classes, for which these electronic devices are indispensable. Moreover, the excessive demand for semiconductors has also been on the rise due to the rising demand from the automobile industry. Car manufacturers' rising investments in tech-heavy electric cars and the release of new game consoles and 5G-enabled cell phones have been propelling the market demand for the past few years.

The demand for semiconductors, which is an essential part of every electronic device, has been so high lately that the manufacturers have been unable to keep up with the demand, and that has resulted in a global crisis. Many leading tech companies had to delay their product launch due to the shortage of this tiny yet mighty product.

Manufacturers of computers, smartphones, gaming consoles, vehicles, networking devices, and industrial machines have been struggling to buy enough chips to use in their products to meet the rapidly increasing demand for the products.

The leading electronic devices companies have been facing the consequences of this issue. Apple was compelled to delay the launch of its much-awaited iPhone 12 by two months last year due to this shortage. Samsung, which is the second-largest buyer of chips globally for its products following Apple, might also have to shift the launch of its high-end smartphone to a later date due to the shortage. This was despite Samsung also being the second-largest producer of chips globally.

The automobile companies are also facing the brunt of the shortage of semiconductors. Ford, an American multinational automaker, recently cancelled shifts at two car plants and said it could face a loss of up to USD 2.5 billion in 2021 due to chip shortages, while Nissan, a Japanese multinational automobile manufacturer, is registering no outputs at plants in Mexico and the United States. General Motors said it could also face a loss of about USD 2 billion.

Sony, together with other console makers, has struggled with stock shortages over the last year. The company will also not be able to make up to its target sales due to this shortage. Microsoft’s Xbox is also facing a shortage and the consequent loss. The company forecast that the supply issue might hinder the market growth until the second half of the year.

The crisis of shortage of semiconductors and the imbalance in the demand and supply chain will affect the prices of the commodities, and the consumers will have to face inflation in the prices in cars and phones with supply taking time to catch up with the demand.

The crisis of semiconductors or chip shortage is likely to persist for quite some time until the supply reaches the levels of market demand, which is exceptionally high. It is estimated that it will take nearly two years to set up complex semiconductor production factories and to get them working smoothly, and manufacturers are in the process of significantly raising prices for the second time in less than a year due to the huge loss they are facing since last year due to this dearth.