For the last several years, there has been a worldwide shortage of computer chips, also known as integrated circuits or semiconductor chips, and this shortage has affected over 170 industries. The shortage started before the COVID-19 pandemic and has been made worse by many different factors including the pandemic, severe weather events, trade wars, and the Russian invasion of Ukraine.
The computer chip shortage is alarming because these integrated circuits are used in electronics of all kinds including computers, mobile devices, video game consoles, graphics cards, automobile electronics, and much more. Businesses in many different industries that rely on computer chips have had to slow or stop manufacturing due to the lack of availability of these chips. The increase in demand across industries with the decrease in supply due to slowdowns in production started this shortage while world events have only made it worse.
The worst of the computer chip shortage was in 2021 when there was only a 5 day worldwide supply, but the shortage and supply chain issues are not expected improve much in 2022.
When you work with First MCS, you do not have to worry about the computer chip shortage impacting our available products and services. We offer advanced point-of-sale (POS) systems that include the apps, software, and equipment you need for safe and reliable payment processing. Our POS terminals and other equipment are ready to go, and you will experience no delay on getting your equipment due to the computer chip shortage.
Causes of the Computer Chip Shortage
While many blame the COVID-19 pandemic for starting the computer chip shortage, the shortage actually started before the pandemic. However, the pandemic did worsen the shortage.
The highest demand pre-pandemic was for older computer chips, not the newest state-of-the-art chips manufactured by the leaders in chip production. This caused the semiconductor fabrication plants to reach maximum capacity before the pandemic and the onset of the pandemic made demand forecasting much more difficult which made the shortage worse.
The COVID-19 Pandemic
The beginning of the COVID-19 pandemic skewed market forecasts which made it difficult for chip manufacturers to adjust to new demands. At the same time, many industries, including the auto and consumer electronics industries, cut down on production. This hurt the consumer electronics industry as there was a higher demand at the beginning of the pandemic for home electronics such as laptop and desktop computers, video game consoles, televisions, and headphones. The chip shortage resulted in slower production and longer wait times for these products.
The auto industry was also heavily affected as many businesses within this industry cut production only to have the demand for vehicles increase as COVID-19 restrictions on travel were lifted. The computer chip shortage which slowed the production of automobiles led to the car shortage that is still a problem today. As the demand for vehicles increased, the computer chip manufacturers were not currently making the types of chips needed. A wait time of 3-4 months per chip only compounded the shortage.
Even though computer chip manufacturers have increased plant production to help meet the new demand, there is simply not enough manufacturing capacity. The pre-pandemic demand for older computer chips for new technologies was straining production and the pandemic worsened the shortage of older computer chips needed for necessary functions for computers, mobile devices, medical devices, broadband systems, and automobiles. The existing computer chip manufacturers are still at capacity which means that there will continue to be a shortage of older computer chips.
China – U.S. Trade War
The China – U.S. Trade War made the computer chip shortage worse in the United States through restrictions on Chinese products. The U.S. Department of Commerce imposed restrictions on Semiconductor Manufacturing International Corporation (SMIC), China’s largest computer chip manufacturer, in September 2020. This made it difficult for SMIC to sell computer chips to American businesses and forced businesses to turn to other computer chip manufacturers that were already at capacity.
Severe Weather Events
There are two severe weather events that impacted the production of computer chips. The first was a severe winter storm in February 2021 that caused two semiconductor plants in Austin, TX to close. These plants were owned by Samsung and NXP Semiconductors and neither of these plants were able to manufacture computer chips for several months.
The other weather event that impacted computer chip production was a drought in Taiwan in 2021. Taiwan is the worldwide leader of the semiconductor industry with Taiwan Semiconductor Manufacturing Company Limited (TSMC) accounting for most of their semiconductor production. When the drought occurred, computer chip manufacturers were not able to get the ultra-pure water in the amounts they needed to clean their factories. This led to a slowdown in production for some of the world’s leading computer chip manufacturers.
Facility Fires
Several fires at semiconductor production facilities have also contributed to the computer chip shortage. In October 2020, Japanese semiconductor manufacturer Asahi Kasei caught fire and Renesas Electronics, another Japanese manufacturer, caught fire in March 2021. Renesas supplied 30 percent of the microcontroller units used in automobiles on the global market and it took months for them to resume normal production. Another fire at an ASML plant in Berlin, Germany in January 2022 affected the production of equipment used for computer chip manufacture.
Russian Invasion of Ukraine
Neon is a noble gas needed for lasers that are used in the production of computer chips. Ukraine produces half of the global supply of neon and 90 percent of the semiconductor-grade neon used in the U.S.
From December 2021 through March 2022, the price of neon increased sixfold as political tensions rose and the ensuing Russian invasion has greatly limited the supply of neon. Computer chip manufacturers have looked for other neon suppliers in China, but these new suppliers cannot increase production for at least nine months. Trade sanctions imposed on Russia by western governments are also impacting computer chip production as Russia exports 40 percent of the global supply of palladium used to make certain chip components.
What is Being Done to Stop the Computer Chip Shortage?
While there are many factors that play into the computer chip shortage, the main problem is that computer chip manufacturing in its current state simply does not have the capacity to meet the increasing demand. Governments and businesses in computer chip production and the impacted industries are taking steps to help alleviate the shortage.
USICA
The U.S. currently only accounts for 12 percent of global semiconductor production as 75 percent of semiconductor production is done in East Asia. In June 2021, the U.S. Congress passed the U.S. Innovation and Competition Act (USICA) to help increase computer chip production in the U.S. The USICA provides funding for the CHIPS for America Act, including $52 billion to help stimulate private-sector investments.
Manufacturers Boosting Production
Computer chip manufacturers spent hundreds of billions to increase production capacity in 2021 and this expenditure is expected to surpass $150 billion in 2022.
Intel opened a new semiconductor fabrication plant in October 2020 in Chandler, AZ and announced in March 2021 that they are investing $20 billion to build two more plants. In January 2022, Intel announced that they are investing another $20 billion for two new facilities in Ohio to help boost production.
Samsung announced in November 2021 that they were investing $17 billion to build a new factory in Taylor, TX to manufacture processors to support mobile, 5G, high-performance computing, and artificial intelligence. Texas Instruments also announced a $30 billion plan to build a new plant in Sherman, TX. General Motors is working to help the shortage by changing their supply chain to source computer chips directly from chip manufacturers.
American manufacturers are not the only ones taking action to help the shortage as TSMC in Taiwan is also investing in increasing their manufacturing capacity. In May 2020, TSMC announced that they would invest US$12 billion to build a computer chip plant in Arizona. Construction of this plant began in June 2021, and they expect to begin producing computer chips in 2024. TSMC also announced in April 2021 that they would invest US$100 billion over the following three years to increase the manufacturing capacity of its existing plants.
Is the Computer Chip Shortage Improving?
Experts predict that the supply of computer chips should see some improvement in 2022 as the demand for some electronics is starting to slow down. However, the growth of the computer cloud industry and 5G communication ecosystems may lead to another increase in demand.
For now, businesses and consumers should continue to expect a shortage that could slow or stop the manufacture of certain products.
Point-of-Sale Systems from First MCS
As the computer chip shortage continues to affect the production of electronics worldwide, you will not have to worry about any delays when it comes to point-of-sales terminals and systems from First MCS. There is no computer chip shortage with us as we can supply you with the POS system and equipment you need to make your payment processing easier, safer, and more cost-effective. Call us at (866) 673-3099 for more about our POS systems.