The great chip shortage of 2021: Why carmakers and computermakers are scrambling
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The Biden administration, already dealing with a variety of crises, is having to deal with yet another: a chip shortage that has slowed the production of everything from cars to laptops.
Fearful of the impact on jobs and an already slow economy, the White House on Feb. 11 announced plans to help alleviate the problem. But the effort is unlikely to lift chip production anytime soon.
Here’s what’s happening.
Which industries have been affected by the chip shortage?
The auto industry, which uses dozens of chips in every vehicle it produces to control everything from antilock braking systems to infotainment screens, has been the poster child for the shortage. General Motors, for example, said it would close three big factories and reduce production at some others through at least mid-March because of a lack of chips. Ford, Honda, Fiat Chrysler, and Volkswagen have also been hit. “This is an industry-wide issue,” GM CEO Mary Barra said during a recent call with analysts. “We do have mitigation strategies.”
Additionally, Sony says the shortage has hampered its production of new PlayStation 5 gaming consoles, while Nvidia and Advanced Micro Devices blamed a slowdown in graphics card production on the problem.
What’s causing the shortage?
After a few years of tepid demand for most tech gear, the COVID-19 pandemic unexpectedly spurred a huge tech buying spree. Manufacturers of personal computers, laptops, and tablets—all of which require chips for processing, graphics, and other functions—were caught off guard.
Last year, computer sales exceeded 302 million units, a 13% increase from the year before, and the most since 2014, according to market tracker International Data Corp. At the same time, webcam sales rose almost 360%, a consequence of people working from home wanting to use video conferencing.
Have trade restrictions impacted chip supplies?
Another cause of the shortage is the former Trump administration’s trade battle with China. The war caused many customers to avoid chips from Semiconductor Manufacturing International, or SMIC, a Chinese chip manufacturer that accounts for about 5% of global semiconductor supply, and about 10% of chips that are made with older technology.
In a decision announced last fall, the U.S. Commerce Department declared that SMIC may supply the Chinese military with chips, making it a threat to national security. In December, the federal government restricted SMIC from obtaining some U.S.-regulated chip-making equipment. Buyers cut back orders from SMIC.
Can’t other chipmakers build more factories?
They can—but not easily or quickly. Many companies thought of as chipmakers, including Apple, Qualcomm, and Nvidia, design chips but don’t actually manufacture them. Chip making has become an increasingly consolidated industry because a new chip fabrication factory can cost $10 billion or more. This year, only three companies are manufacturing chips using the most cutting-edge technology: Samsung, Taiwan Semiconductor, and Intel. In February, Samsung filed to build a new $17 billion factory near Austin, Tex., that won’t produce chips for sale for almost three years.
What can the White House do to help alleviate the problem?
President Biden’s plan to sign an executive order addressing the chip shortage lacks details. Furthermore, from the limited information released, it’s clear that the plan will take time to have much impact.
“The review will be focused on identifying the immediate actions we can take, from improving the physical production of those items in the U.S. to working with allies to develop a coordinated response to the weaknesses and bottlenecks that are hurting American workers,” spokeswoman Jen Psaki said.
Lawmakers and some chip companies have been seeking government funds to subsidize building more U.S. manufacturing capacity, but any increased production could take years.