The global chip shortage has sent shockwaves through all industries, which may not be resolved until 2023. What caused this crisis, how are current chip stockpiles looking, and could the response see a fall in the price of future semiconductors?

What caused the shortage of integrated circuits?

The electronics industry faces a significant semiconductor crisis with extremely reduced stocks, long lead times, and difficulty meeting the surging demand. Of all crises to ever hit the semiconductor industry, the current shortage is arguably the worse in history, with a full recovery expected to now take years.

The cause of the current crises has its roots in the COVID-19 pandemic of 2020, but not in the way one would expect. Global lockdowns of non-essential services and industries saw many confined to their homes, but those involved with essential services such as food and semiconductor production continued to operate. If anything, the demand for semiconductors in computing saw a sharp rise due to the many millions working from home who all wanted new computers, laptops, tablets, and office equipment.

However, the automotive industry practically ground to a halt, and the lack of car sales combined with less spending saw many car manufacturers suspend all operations. This suspension of car production was noticed by semiconductor companies as the demand for automotive-grade parts entirely disappeared. Therefore, semiconductor manufacturers stopped producing automotive-grade parts.

When automotive manufacturers went back into production, they realised that there were no more automotive-grade parts available, and the lead time on such parts can be up to a year. Thus, semiconductor manufacturers panicked and started to produce automotive-grade parts again while using up foundry time for other commercial semiconductor devices. Now, the world is seeing a game of cat and mouse where semiconductors are in shortage as the industry attempts to control semiconductor supplies.

What is the current status of the chip shortage?

This problem was reported at the beginning of 2021, with an estimated 6 months to see new parts leaving foundries. However, it is now August 2021, and there are no signs that the chip crisis is improving.

Recently, German IC producer Infineon said that chip shortages in crucial areas could persist right up to 2023. Infineon further mentioned that current production rates are around 20% short for the cellular industry and 10% for other sectors. While this may not seem like much, it must be considered that large businesses will often buy up entire supplies leaving none for others (just like how toilet paper randomly became a rare commodity at the beginning of the pandemic).

The chip shortage troubles can also be seen in the share prices of semiconductor companies. As news of shortages worsens, stock prices for semiconductor companies increase as the high demand will see guaranteed sales and allow for price increases. This increase in income will also enable semiconductor companies to research and expand their facilities to help create the next generation of devices. ASE Technology (based in Taiwan) has also stated that the semiconductor shortage could last well into 2022 as the industry recovers from the pandemic and rapidly changing demand.

Will this see a reduction in semiconductor prices in the future?

The global chip shortage is seeing semiconductor companies rush to increase their production capabilities. This is being realised by both pushing out priority devices first and the construction of new semiconductor foundries. The desire to construct new foundries is also being fuelled by increasingly harsh restrictions on trade with China and its products to gain semiconductor independence.

Once supplies return to normal, the industry will be left with an excessive production capability which will undoubtedly be utilised along with large stockpiles of chips for all sectors. As such, the price of semiconductors could drop sharply in the years following 2023, assuming that old stockpiles are still relevant and the excessive production capabilities of foundries cannot be used on next-generation hardware.