If that iPhone, PlayStation 5, or new you car you ordered was delayed in the last two years, blame the global chip shortage.
The issue started last year, the COVID-19 pandemic, shut down of the factories, high demand of work from home gadgets, and a bunch of other factors like the US-China trade war, caused gadget makers and car companies to fumble to get chips needed to produce their marquee offerings.
This resulted in delayed shipments and feature slashing from Apple, BMW, Sony, and Nissan.
The chip shortage continued in 2021, and it hasn’t ended yet. In this story, we’ll take a look at what companies, industry experts, and analysts say about the issue going into 2022.
Phones, PCs, and other personal devices
This was a crappy year for gadget makers. Apple lost more than $6 billion in the quarter ending in September, and $3 billion in the quarter before that. Xiaomi experienced flat revenue in the September quarter because of the chip shortage.
In Q3 2021, smartphone shipments shrunk by 6% year-on-year, according to a report by Canalys.
In October, during it, Q1 results, Intel CEO Pat Gelsinger said that the chip shortage problem could extend to 2023. That doesn’t sound good at all.
Some other chipmakers disagree with this. Earlier this month, Nvidia’s Chief Financial Officer, Colette Kress, said that the company expects GPU supplies to improve in the second half of 2022.
Currently, the GPU shortage is so bad, some retailers zip-tying PC towers on display in their stores to prevent components from being stolen. We certainly don’t want that trend to continue.
Qualcomm’s CEO, Cristiano Amon, also shares a similar view and thinks that the issue will be resolved sometime next year.
iPhone supplier Foxconn also said that the chip shortage problem might run until mid-2022. So your iPhone 13 orders might be delayed.
Navkendar Singh, a research director at hardware market analysis firm IDC, said that while the smartphone market will recover by mid-next year, the PC market could face some issues:
Modern chips that are built on 4nm, 5nm, and 7nm technology aren’t facing production problems. But the legacy chips that use 10nm or 14nm technology are hard to manufacture. That’s why the PC sector might see slowed growth.
The global PC market’s annual growth fell by 5% in Q3 2021 as compared to the double-digit growth in the previous five quarters. This can be attributed to the strong demand for home workstations during the pandemic slowing down.
Singh said that while individuals might not be looking for new PCs or laptops as much, the enterprise sector will make up for it when employees will return to the office.
One of the gadget sectors heavily affected by the chip shortage is gaming. Mat Piscatella, an executive director and video game industry advisor at the NPD Group, said that the US hardware sales fell by 10% in November as compared the last year.
US NPD 13 Month Trend – Hardware dollar sales fell 38% compared to a year ago, leading the market to an overall 10% decline YoY. All categories of spending decreased when compared to November 2020. pic.twitter.com/viOvasLdt4
— Mat Piscatella (@MatPiscatella) December 13, 2021
According to a report by The Verge, Nintendo, Sony, Microsoft, and Valve are seeing sales drops, and at the same time are unable to keep up with the demand because of the chip shortage. Hopefully, gamers won’t have to face this kind of frustration next year.
Volvo, presenting the first quarterly report after its IPO, said while there has been some improvement in the situation, revenue was down 7% year-on-year.
Nissan boss Makoto Uchida warned that chip shortage could seriously hamper the company’s future plans. In November, BMW said that this issue has forced the company to slash features like touchscreen functionality and backup assistant for parking.
In September, even Elon Musk highlighted supply chain issues with Tesla models.
2021 has been the year of super crazy supply chain shortages, so it wouldn’t matter if we had 17 new products, as none would ship.
Assuming 2022 is not mega drama, new Roadster should ship in 2023.
— Elon Musk (@elonmusk) September 1, 2021
Tom Coughlin, IEEE Life Fellow, said that older chip design is one of the prime reasons the automotive industry is facing a shortage of semiconductors:
The chip shortage will restrict the manufacturing of light automobiles into 2023. This is because of the increasing use of chips in modern automobiles, the growth of electric vehicles that creates additional demand for automotive electronics and, in particular, because of the long design cycles for automotive that results in many qualified chips using older semiconductor processes that are not supported in the larger manufacturing facilities that are built around more modern process nodes.
One of the reasons the car industry is facing this shortage is that companies cut down on orders in 2020 due to the pandemic, but later reordered some of the supplies as the demand rose.
Willy Shih, a professor of management practice in business administration at Harvard Business School said this pattern of ordering is causing problems for both carmakers and chip manufacturers:
The problem right now is the shortage is being aggravated by double ordering. Chipmakers loathe adding capacity on the older nodes which are heavily used (and less expensive) because those areas are not particularly profitable, and the cost of excess capacity is brutal. So there has perhaps been underinvestment and restraint in adding capacity until lately.
The road ahead
Some chip manufacturers have declared new investment plans and commitment to building new facilities, but that will hardly solve the problem in the short term.
In October, TSMC said it’ll open a factory in Japan that will use older technology to meet up the demand. However, the plant will start producing semiconductors only in 2024. Earlier in the year, the Taiwanese firm had committed to investing $100 billion over the next three years to increase its production capacity.
Earlier this week, Intel committed to opening a new facility in Malaysia with a $7 billion investment. In March, the company had announced a $20 billion fund to set up manufacturing plants in the US.
As my colleague Cate noted in her story, companies are also experimenting with new materials and techniques, including gallium nitride (GaN) for semiconductors and photonic materials for processing inside of chips. But we might have to wait for a while to see these in the wild, and reduce our dependence on older tech.
Wayne Lam, a senior director of research at CCS Insight, said despite the situations are improving, there are a few manufacturing challenges ahead:
There have been sizable investments in new silicon fabs which will start to yield capacity upside in late 2022 or early 2023. However, there are still risks on the horizon. For example, the industry might be back to full capacity for silicon fabrication but not in packaging, which is the lesser-known of the overall chip supply chain.
The semiconductor industry has a long history of hog cycles so decision-makers are wary of putting the foot on the pedal for too long before easing off.
While silicon chip makers are recovering from this global issue, I’m just hoping that we have enough potatoes in the world. Because I’m not ready for that chip shortage at all.
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