What You Need to Know About the Semiconductor Chip Shortages in 2023

What You Need to Know About the Semiconductor Chip Shortages in 2023

Buckle up folks. Reports and numbers indicate that the semiconductor chip shortage will extend deep into 2023. The painful period hitting the production of all sorts – cars, computers, appliances, toothbrushes, and more – will cause even more launch delays and timing mismatches.

The hypercompetitive semiconductor industry doesn’t have a quick turnaround in operations. So even if conditions turned around for the positive tomorrow, we’d still have to wait quite some time for the positive effects to start showing.

There are a lot of factors impacting semiconductor chip manufacturing, so let’s get started.

[Source: Pixabay]

What Is the Semiconductor Chip Shortage and How Long Will It Last

Shortages like this don’t happen often, and many seasoned professionals have commented that they never experienced such a dire shortage until now.

The current semiconductor chip shortage tells us that demand is higher than supply.

While people are under the impression that the pandemic led us to this point, the truth is that this chip shortage began in 2018. Since then, it slowly led to consumers having more and more difficulties acquiring certain gadgets, cars, microprocessors, etc.

Understandably, this is breaking havoc on usually streamlined manufacturing and assembling processes. For instance, in the automobile industry, managers can’t figure out their order backlogs due to increased demand. Some of them have vehicles collecting dust because a crucial chip is missing.

Experts are constantly shifting their predictions. Now, they’re mentioning that we’ll have to wait until early 2024 for some stability to come by.

Currently, but slowly, capacity is being freed up due to slowing down in certain end markets. The sale of personal gadgets finally started to fall in March 2022, especially for laptops, phones, and similar devices. Some Taiwan manufacturers are once again reallocating their operations to the automobile industry.

[Source: Pixabay]

The Three Factors That Led Us Here

There is rarely one thing that causes such a disbalance in an industry. So here are the three time periods that rattled semiconductor manufacturing the most.

2018-2019: Trade Wars Lead to Supply Chain Uncertainty

When the Trump administration decided to target China, things started going downhill. The US opposed the idea of China becoming a leader in semiconductor manufacturing, so it implemented trade tariffs aimed at Chinese imports in 2018.

Such a move didn’t go down well, leading to escalating trade tensions, hoarding of supplies, blacklisting of certain Chinese manufacturers, etc. Naturally, China didn’t sit around idly but started developing its semiconductor manufacturing ecosystem.

2020: COVID-19 Wreaks Havoc

As we were all forced to move to a more virtual environment, cloud computing services from Microsoft to Amazon Web Services had increased chip demands. Owing to this demand surge, other industries started having difficulties meeting supply and demand.

The volatile pandemic environment and changing work regulations didn’t help – think back to how, just recently, production in many industries stopped for months and how whole operations have halted because workers needed to stay home.

2021: The Chip Shortage Gets Even Worse

Apart from the trade war and the pandemic, there were other factors added to the mix in 2021. The chip shortage got worse due to the storm Uri causing huge power outages in Texas and leading to large manufacturers pausing their operations. And we can’t skip over the drought Taiwan has seen – the worst in the last 50 years, and a huge blow to the shortage, since water plays a big role in its production.

In the meantime, the demand from the automotive industry eased up. One would think that would’ve balanced out things a bit, but no. Demand grew in other industries as people began buying and upgrading phones, computers, and other personal gadgets. That further pushed the already constricted automobile industry to produce fewer cars.

The State of Product Development Amid the Chip Shortage

Developing a product in these conditions can prove to be quite a challenge, especially for startups. Predicting sales for a product isn’t a streamlined process as it was before, and companies don’t have the fallback cash reserves they did before.

Photo by Onur Binay on Unsplash

Here are some of the advice you can follow to stay afloat and successfully develop your products amid chip shortages:

  • Get ready for long lead times – Waiting for the right part is a probable scenario to encounter in product development these days. Amp up your patience.
  • Hire a consultancy – There are product development consultancy out there that are already used to navigating these unstable manufacturing waters in the name of their clients. Just make sure you partner with a reputable consultancy.
  • Rethink your launch date – Sit down with your team to assess if you gave yourself a realistic deadline for launching the product. Do you have the time and capital to commit to such a goal? But don’t go overboard with delaying the release – your product may become a commodity or outdated in the meantime.
  • Order smartly – Order parts that you can choose from multiple sources aka manufacturers. That way you always have an alternative manufacturer to fall back on. Also, you can always order some parts in advance and large quantities. We’re talking about components that you’re sure you’ll use a lot. Having reserve parts is never a bad thing in that case.
  • Don’t go overboard with bespoke designs – If you use bespoke highly integrated components, well, you’re much more at risk. A more generic design is a safer option these days. Custom footprints should wait a while, especially if they make you dependent on solely one manufacturer.

Final Word

Manufacturing with semiconductor chips will be a challenge in 2023. Component availability keeps climbing on people’s list of component selection priorities.

If you’re in the product development business, factor in the additional time and manpower it may take to work around these challenges.

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