Global Shortage of Computer Chips Hits US Manufacturing

A global shortage of computer chips is causing major headaches for American manufacturers.

The COVID-19 pandemic has caused the disruption of supply chains and manufacturing the world over. Manufacturers of computer chips in Asia have been especially hard hit. And that means companies that make products that rely on such chips are feeling the pinch.

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It’s been estimated that U.S. automakers alone will make 1 million fewer cars this year because they’re unable to source the computer chips they need. That in turn has driven up prices of new cars, but also driven a sharp rise in the price of used vehicles as well.

But other manufacturers are also starting to be impacted with computer giant Apple saying Tuesday the chip shortage is already hurting sales of iPads and Mac computers and will soon impact iPhone production.

“The major driver is shortage of personnel at the manufacturing stage because foundries — the factories where chips are made — are experiencing personnel shortages and closures due to the pandemic, particularly in East Asia,” said Seda Memik a professor of electrical and computer engineering as well as computer science at Northwestern University.

Memik says car manufacturers reduced orders for chips when the COVID-19 pandemic hit and have been caught short by resurgent demand. Major computer and electronics manufacturers fared better because they were able to stockpile supplies.

“In terms of computers — laptops, desktops — big players such as Samsung or Apple were better protected because they have always had big bargaining power and so they started stockpiling computer chips early on,” said Memik. “So the availability of their products to consumers was not affected at all. Same for smartphones, although right now they are saying there may be some effects, but so far not so much.” 

But Memik notes the pandemic also caused a change in demand for chips. With more and more people working from home, or simply home because of the pandemic, demand for personal computers as well as gaming consoles surged.

“The demand jumped really high for these personal devices, so that’s one of the important changes we have observed,” said Memik.

“At this very moment, the worst affected are those in the auto industry, in some ways brought on by themselves at the start of the pandemic when they slashed orders for chips,” said Robert Sloan who heads the computer science department at the University of Illinois Chicago. “But everything else is right on the cusp and any given month smartphones, laptops, even printers (could be in short supply).”

He notes that in addition to car manufacturers, makers of computer gaming consoles are also struggling to meet demand.

“If your teenager wants an Xbox they will have to wait awhile,” said Sloan.

The main reason that the chip shortage has been prolonged is that it takes a huge amount of money to build new semiconductor manufacturing plants.

“Chips are a very slow-moving business. I’ve seen estimates that it costs $10 billion with a ‘B’ dollars to stand up a new chip manufacturing plant,” said Sloan. “There’s a very big time-lag in chips because of the cost and difficulty of establishing manufacturing plants.”

Even now, the chip manufacturers are not yet back to pre-pandemic production levels according to Memik.

“They are bouncing back but they are still not at a 100% capacity,” said Memik.

“On the manufacturing side they are working very hard to bounce back and they’re forecasting that they will be back to full capacity within a quarter or so.” 

“In terms of the consumer side and supply and demand getting better aligned again, that will take a little longer and probably stretch well into 2022,” said Memik.

But the pandemic experience could have long lasting impact on how companies and nations view global supply chains — and their potential vulnerabilities. 

“One thing that has become an issue is that chip manufacturing and silicon production has started to become a national priority for the United States,” said Memik. “It had gotten to a point where too much of it is happening and was happening overseas. And before the COVID-related shortages there were already concerns about intellectual property protection and security concerns. And there was a discussion going on about having more production on U.S. soil for mission critical chip manufacturing. I guess that conversation will become even more important.”

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