Whether you work in tech or not, you may have heard that there is a global computer chip shortage. This week the CEO of Cisco said this problem could persist for another 6 months. These chips aren’t fried and covered in salt, but chances are you love them anyway. Let’s talk about why there is a global shortage.
What Happened to All the Chips?
Break out your ECON textbook because this is a classic case of supply and demand. The simplest answer is we are in a pandemic. However, the reason for the current shortage might not be what you think. At the beginning of the pandemic, there was a temporary delay of supplies when factories shut down. Even though production is back to normal now we still have a problem.
Unsurprisingly, demand for computer chips has greatly increased over the course of this pandemic. From work from home set ups to digital ecommerce, new businesses and side hustles, people bought more computers. With people spending more time at home they turned to tech for entertainment and bought more TVs, game consoles and newer phones. On top of all that, car manufacturers are all investing in tech-heavy electric vehicles due to the rising environmental concerns.
Add that together and according to Neil Campling, media and tech analyst at Mirabaud, we have a “perfect storm of supply and demand that can’t be kept up with, everyone is in crisis and it is getting worse.”
How Long Will This Last?
Now that we know the problem the solution should be easy. We need to make more computer chips, right? Yes, that is the answer, but it isn’t a quick one. It can take up to two years to get a factory that can produce complex semiconductors up and running. Manufacturers are also raising their prices significantly for the second time in less than a year.
Cisco CEO, Chuck Robbins, said that “We think we’ve got another six months to get through the short term.” He is hopeful that “The providers are building out more capacity. And that’ll get better and better over the next 12 to 18 months.”
How Does This Affect Me?
According to an analysis by Goldman Sachs, the shortage touches 169 industries in some way. Not to mention how it will affect you as a consumer. With demand only increasing and supply struggling to catch up, it will likely result in a higher cost for the end consumer. If this continues, we can expect phones to cost more, games to cost more and even cars to cost more.
However, some suppliers are wary that the surge in demand may not last. Panicked buyers increasing order volumes and placing orders with multiple suppliers could cause a problem if demand does not continue to increase exponentially. This is similar to what happened in the beginning of the pandemic with toilet paper. While the end of the pandemic may be in sight for many, the economic impacts are still going to be a major challenge. The global chip shortage will likely continue into next year.