Expect cars, phones, and other chips-loaded devices to cost more. The appetite for semiconductors, also known as chips, has been on an upward trend owing to a worldwide spike in demand for smart electronics.
In layman’s language, chips are the “brains’ for computers or devices with tiny computers in their systems. Chips are crucial components that make computer-controlled parts in cars work — everything from engines to power windows, driver-assistance, and navigation features.
Covid-19 pandemic is responsible for the rise in the demand for chips. As more people stayed home during the pandemic and bought consumer electric goods to keep their lives humming, the semiconductor industry struggled to meet the growing demand.
To work or learn remotely, legions of people bought personal computers, monitors, and other gadgets, including laptops, tablets, and phones.
Initially, there was a feeling that the coronavirus was a passing cloud that would soon prevail. As weeks turned into months, it became clear that the virus was unrelenting, and we were going to be cooped up in homes for the long haul, further piling pressure on the supply chain for devices.
Besides, the world is fast-embracing electric cars and 5-G phones, which heavily rely on chips. As their demand rises, the pressure for chips has skyrocketed. A typical 5G smartphone has more chips than its predecessor phones. For example, a 5G phone can hold as many as eight power-management chips, compared to two or three in a 4G phone.
Modern cars have dozens of chips to regulate engine temperatures, adjust seats, control lights, and stabilise suspension systems, among many other functions. Smart buildings with sensors for many automated functions, including temperature and lighting regulation, are hungry for semiconductors.
This situation is further compounded by a prolonged drought in Taiwan, which produces most semiconductors for the world. Semiconductor manufacturing requires billions of litres of clean water to clean potential impurities off electronic devices. As the drought continues to bite, the government has cut back on the water for industrial use, hampering chips’ output.
Shortage of chips-loaded devices is in short supply, thereby bumping the price up. Samsung, the goliath of home electronics and the second-largest chips producer, has reported that the company might have to postpone the launch of its high-end smartphone owing to the chip shortage.
Car manufactures are revising their 2021 production projections. Some of them have closed their plants, awaiting the resumption of the supply of semiconductors.
The uptick in prices is not just going to be for new cars and devices. Buyers of second-hand appliances and vehicles will feel the pinch, too, at least in the short term.
Technology is expected to accelerate recovery after the pandemic battered many economies. The chips famine will cause businesses to recalibrate their expectations and the economic recovery will take longer than previously expected.
