If you recently wanted to buy a new generation of AMD or NVIDIA graphics cards, AMD Ryzen processors, or game consoles like the Xbox Series X or Sony PlayStation 5, you may have noticed that there is some shortage in the market right now. Its main reason, in addition to the ongoing COVID-19 pandemic, is the global chip shortage, which severely limits the supply of new devices. The semiconductor industry crisis has negatively impacted many industries, including automobile manufacturing, the cryptocurrency market, and the smartphone industry.
It seemed that smartphones managed to avoid a crisis due to a shortage of microcircuits in late 2020 – early 2021, but now experts’ concern about a possible shortage is growing. Back in March this year, Xiaomi President Wang Xiang hinted that a shortage of semiconductors would lead to higher prices for mobile processors, leading to higher prices for smartphones this year. At the same time, Samsung CEO Dongjin Koh warned of a serious imbalance between supply and demand in the chip market.
It looks like we have yet to see the same horrific “out of stock” messages that are now set up by stores around the world in front of computer hardware and game consoles regarding smartphones. The prospect that the chip shortage will affect the release of smartphones in 2021 is quickly becoming a reality.
Global Chip Scarcity: What You Need to Know
The current shortage of microcircuits is the result of huge demand and limited supply. The unprecedented demand for home entertainment during the COVID-19 pandemic has caused problems with the supply of the latest game consoles and graphics cards. And the forced transition to remote work from home led to a record increase in laptop sales over the past ten years. At the same time, the rise in the value of cryptocurrencies has revived the profitability of mining, increasing the demand for various high-performance equipment for mining cryptocurrencies.
While consumers are perhaps most noticing chip shortages when it comes to gadgets, the origins of the current scarcity can be traced back to the auto industry. At the start of the pandemic, automakers slashed processor orders sharply in anticipation of falling sales and, as it turned out, rushed. The fact is that auto sales quickly recovered, and brands began to re-purchase advanced production facilities. However, chipmakers have already given the vacated capacity to customers in other industries experiencing increased demand. As a result, two huge markets need even more chips, but production capacity has already been depleted.
Several small factors also contributed to the worsening of the deficit. So, in February, due to a power outage due to abnormally cold weather, Samsung suspended the work of its factory in Austin, Texas, until mid-March. Meanwhile, Taiwan is experiencing a severe drought that threatens local producers. The U.S.-China trade war has also led Chinese companies like Huawei to stockpile chipsets and other components since last year.
The volume of production of microcircuits is limited.
It is important to note that Microsoft, Sony, NVIDIA, AMD, Apple, Qualcomm, and other companies do not make their own processors. Most of the world’s semiconductors are manufactured by two companies: Samsung and TSMC. However, there is a strong demand for products from other manufacturers such as NXP and Texas Instruments. This is especially true when it comes to automotive components.
The bulk of industrial demand for all kinds of chips comes from multiple industries. Chipsets for high-performance devices are mainly produced using 10- and 7-nanometer technologies from Samsung and TSMC. Smartphone chipsets are also predominantly manufactured by these companies. And the flagship mobile chips rival those for cars for TSMC’s 5nm lines.
Why not increase production capacity?
Intel stands alone here as well. The company manufactures its own processors and does not experience such a shortage as competitors. Intel is looking to capitalize on the current shortage by expanding its manufacturing in Arizona and opening new factories to re-start accepting orders for third-party chips. But it will take months for the industry to become familiar with and evaluate Intel’s tools and workflows.
So why not just increase production to meet demand? Unfortunately, things are not so simple here. Semiconductor manufacturing is a complex and time-consuming activity that requires knowledge and intellectual property. Expanding existing production lines can take months, and building new plants from scratch can take years and cost tens of billions of dollars. And the promise of the administration of US President Joe Biden to revise the supply chain and develop a long-term strategy in this direction is unlikely to help reduce the deficit in the short to medium term.
What does the device chip shortage mean?
We have already seen how chip shortages materialize in supply delays, shortages, and price increases for various product categories. Automakers were the first to suffer from the chip shortage. According to research firm IHS Markit, 672,000 fewer cars rolled off the assembly lines in the first quarter of 2021. All major brands in the car market, including GM, Ford, and Tesla, will suffer from the chip shortage. Analysts estimate that the auto market will lose $ 60 billion this year due to the semiconductor crisis. Perhaps the only company that hasn’t suffered a serious shortage so far is Japan’s Toyota, thanks to its four-month stock of chips.
The newest PlayStation and Xbox game consoles are also constantly in short supply, although the situation gradually improves. The PC situation is even worse, with the latest graphics cards and processors from AMD virtually unavailable for purchase. And there are no signs that the situation will improve by the end of 2021 or at least 2022. Many retailers sell PC components for much more than the manufacturer’s suggested retail price.
In times of crisis, resellers and speculators tend to thrive. For example, enterprising people buy up game consoles and video cards in batches and then resell them at a large mark-up. Fortunately, such speculation has not yet been observed on other gadgets, but if the deficit increases, then this cannot be avoided.
The release of cryptocurrency mining to profitability is the main factor in the growth in demand for video cards and subsequent speculation. That is why NVIDIA announced the release of special GPUs for mining and reduced the productivity of Ethereum mining in its new RTX 3060 series. However, the growing cost and hardware shortage are pushing small miners out of the market, which affects the so-called democratic mining of cryptocurrencies.
What about smartphones?
With only a handful of new smartphones on the market in 2021, assessing the impact of chip shortages on the mobile market is more difficult than on the automotive or gaming market. But there are already signs that a similar deficit could arise here as well.
This year, cutting-edge mobile processors built on 5-, 7- and 10-nanometer process technology compete for the same product lines as solutions for cars, game consoles, and graphics cards. Some reports are already talking about a shortage of Qualcomm’s flagship Snapdragon 888 chipsets. And rumor has it that this is one reason why Samsung decided to abandon the Galaxy Note in 2021. Even with enough 5nm processors, other smartphone components may be in short supply. Reports indicate that Samsung is having difficulty sourcing the parts needed to make low- to mid-range devices. Other sources say Realme has a shortage of power chips and radios. The lack of components can affect not only the supply of devices but also lead to higher prices.
Qualcomm admits there are problems with chipset shipments. In a recent quarterly report, the company’s new CEO, Cristiano Amon, noted a shortage across the entire industry, not just the smartphone market. He expects the balance of supply and demand to normalize by the end of 2021 when producers bring new capacity into operation.
While smartphone makers are not yet phasing out new smartphones, the supply of processors and other components is not enough to increase global inventory. And for small manufacturers that don’t have the power of Apple or Samsung, it’s a bigger problem. And if you read between the lines, then Amon hints that the release of new smartphones in 2021 will be difficult due to supply disruptions. And even if supply and demand in the market equalize by the end of the year, it will take months for manufacturers to catch up and replenish chips.
Smartphone manufacturers may ultimately limit regional launches of new devices and raise prices in some, if not all, markets to offset rising component costs. In any case, the outlook for global smartphone shipments is as bleak as it is for graphics cards and game consoles, at least through 2021 and possibly even 2022.