The global supply of chips is permanently deviating from its demand. Although manufacturers and governments initiated promising solutions in the past year, the challenge seems unbridgeable for now. Let me explain why.

Anyone currently ordering a game console, smartphone or car risks paying more or waiting longer than two years ago (the black market that has been evolving around the ‘new’ PlayStation 5 since September/October is a great example). Virtually all hardware depends on chips, but demand is huge, and supply is little. Since 2019, the shortage is worse than ever and as you might expect, it has to do with the global pandemic that we have lived through the last 2 years. Since the arrival of the Internet, no event has shaken up this global market more than the pandemic. The current shortage has multiple consequences and causes.

First, the manufacturers of most global chips can be counted on one hand. Taiwan Semiconductor Manufacturing Company (TSMC) global market share is estimated at more than 50 percent. But, TSMC’s supply has limits. If a designer pulls the bell too late on TSMC to meet a rising demand for chips, it can take a long time to fill that extra demand. That’s why automakers are facing a chip shortage to date. In late 2019, at the foot of the corona crisis, automakers predicted a decline in vehicle demand. They cancelled orders for chips. A year later, it turned out that demand was actually increasing and they were facing a huge shortage.

Unfortunately, attempts to place orders again were in vain, because the manufacturing schedule had been adjusted in the meantime. COVID-19 increased global demand for consumer devices, and only the production of chips for consumer devices alone was barely foreseeable. There was simply insufficient capacity to serve every chip-dependent market.

What could be the solution?
Building more factories was the most obvious solution. Chip manufacturers Samsung, Intel and TSMC announced investments of hundreds of billions in the past year to increase production capacity. The bulk of these investments are for the construction of new factories. In turn, the European Union and United States launched initiatives to encourage the establishment of Western factories. While the EU announced projects to increase collaborations among European manufacturers, the U.S. pumped billions of dollars into building factories on its own land.

New factories are as obvious as they are effective. Several market research companies predict that current initiatives could lead to overcapacity by 2023. For now, shortage remains a reality and there is a lot of space between the intention to build a factory and the actual supply of new chips. The foundation of the solution is there, but we are quite some time away from its realization.

Why this subject?
I chose to write an article about the chip shortage because I have experienced problems connected to the shortage in first person. I also like reading about this subject because I like companies in the semi-conductor industry like AMD, NVIDIA, ASML, TSMC etc. and I like their potential as this industry currently has no limits in a world that evolves around digitalization.