Businesses Are Starting To Feel the Effects of the Global Chip Shortage

If you have tried to buy a new computer or video game system in the past year, you have most likely come across out-of-stock notices or listings on eBay for more than double the retail price. As the COVID-19 pandemic hit in early 2020, consumers faced product shortages in everything from toilet paper and hand sanitizer to the Nintendo Switch. But as the economy slowly reopens in 2021, we still must deal with another challenge: the continued global shortage of computer chips.

Why Are Computer Chips So Important?

Computer chips, or semiconductors, operate as the “brain” of any electronic device in the world. Computer chips are found in every machine we use today, from cars to water treatment plants and internet cables. Nearly anything that plugs into a wall has at least one chip that acts as a tiny computer to make the device work.

What Is the Global Chip Shortage?

While the chip shortage is a simple equation of supply and demand, it has global implications for pretty much every sector. In early 2020, major buyers of chips, like auto companies and consumer electronics manufacturers, bought fewer chips in anticipation of decreased demand as people lost their jobs and had to spend less on nonessential items.

What many economists failed to predict, however, is that as more people spent time at home, the demand for consumer electronics, like TVs and video game systems, would skyrocket. To meet this dramatic increase in demand, electronics companies bought up all the extra chips in the market. Combined with uncertainties about consumer spending, chip manufacturers were challenged to match their production capacity with demand, leading to an unprecedented global shortage in computer chips.

What Caused the Chip Shortage?

While unanticipated changes caused by COVID-19 affected the supply and demand of computer chips in 2020, we are still seeing these effects impact multiple industries today. Other industry bottlenecks have caused the chip shortage to continue well into 2021. Although major tech corporations like Qualcomm and Apple have designed the advanced chips we see in the newest cars and consumer electronics, they do not produce the chips themselves. Instead, they rely on advanced factories called foundries to produce their designs.

Just three or four foundries control most of the global chip fabrication, and about 91 percent of contract chip manufacturing happens in Asia alone. With global chip manufacturing in the hands of so few players, production delays added up quickly last year as manufacturers struggled to overcome pandemic-related challenges, such as decreased production capacity, fewer workers, and delayed shipping times.

What’s Happening with the Chip Shortage Now?

As the global chip shortage continues, we are seeing lead times (how long it takes to fill an order for a chip once it has been placed) estimated to be over twenty weeks, compared to the twelve-week lead time in February 2020 before COVID-19 became a global pandemic.

In early 2020, many auto manufacturers underestimated the demand for new cars, expecting that fewer consumers would be driving to work as they transitioned to working from home under government stay-at-home mandates. This has led many carmakers to halt production in 2021 as the chip shortage caught up with them. After reducing chip orders in response to declining vehicle sales in 2020, car manufacturers find themselves in the back of the line today as they try to reorder chips to keep up with the increase in consumer demand for new cars this year. Some auto manufacturers are also forced to release 2021 and 2022 model year vehicles with fewer features compared to the previous year’s releases.

Consumers are bearing the brunt of the global chip shortage; because computer chips are both essential to consumer electronics and in low supply for manufacturers, consumers are seeing the prices of already-costly electronics increasing rapidly if they can even buy them at all. Many video game consoles, like Sony’s PlayStation 5 and the new Xbox Series X from Microsoft, are completely sold out at official retailers and are only available for highly marked-up prices on eBay and other third-party sellers.

Effects of Chip Shortage Will Impact Small and Medium Sized Businesses

It’s not just large enterprises that have massive investments in technology that are going to be affected with this chip shortage. Small and medium sized businesses are also going to be negatively affected by the dearth of supply. Vendors are already having difficulty keeping a healthy inventory of modern office essentials such as laptops, printers, desktop computers, display monitors, and servers. Businesses that need new computer hardware will find it difficult securing office tech in 2021.

Why Outsource Your Business’ IT Support Now?

Computer and networking parts are harder to come by, and the parts that are available have seen their prices go up thanks to low supply. While the chip shortage continues, some businesses are learning how to make do with their existing equipment and therefore are requiring the need to outsource IT to care for these aging systems. Businesses that are relying on older computer systems are also likely to run outdated software. Although it may seem like a business can get by with slightly outdated computer equipment, doing so exposes an organization to threats such as malware.

IT outsourcing is beneficial for many small and mid-sized businesses, as it allows an external service provider to deliver some or all the IT functions required by a business including managing infrastructure, directing strategy, and running the service desk. An outsourced IT provider is also better equipped to secure computer hardware at lower prices than an average consumer could. With outsourced IT services, businesses do not need to invest in costly computer systems and tools but instead pay a fixed monthly or per-user fee to an IT outsourcing company such as a Managed Service Provider.