What it means for your tech

If you’ve tried buying the latest generation of AMD or Nvidia graphics cards, AMD Ryzen processors, or game consoles like the PS5 or Xbox Series X / S, you may have noticed that some sectors are experiencing a certain equity crisis in consumer tech -Industry at the moment.

The main culprit – in addition to the impact of the ongoing COVID-19 pandemic – is a global chip shortage, which is severely limiting the availability of the latest technological products. The lack of processing components is also affecting other markets including automotive, cryptocurrency, and now smartphones.

Smartphones appeared to be evading the crisis in late 2020 and early 2021, but there are growing concerns that similar bottlenecks are on the way. Xiaomi President Wang Xiang had already indicated in March 2021 that a chip shortage would drive SoC prices up and that this could lead to more expensive smartphones this year. In the same month, Samsung boss DJ Koh warned of “a serious imbalance between the supply and demand for chips”.

Fortunately, we are not yet seeing the same dreaded “Out of Stock” news for smartphones that is currently affecting computer parts and game stores around the world. However, the prospect that the chip shortage will impact major phones later in 2021 is fast becoming a reality.

The Great Global Shortage of Computer Chips: What You Need To Know

The current chip shortage is the result of a perfect storm with high demand and limited supply. The unprecedented desire for entertainment at home in the wake of the COVID-19 pandemic has created stock issues in the latest game consoles and graphics cards that have lasted well beyond the usual launch window rush. The necessary relocation from home has also led the growth of laptops to hit a decade high. At the same time, the boom in cryptocurrency value has revived mining profitability and amassed demand for various high-end processing components.

The chip shortage is the result of a perfect storm with high demand and limited supply.

While consumers are most clearly noticing the shortage of chips in devices, the origins of the current shortage can be traced back to the automotive industry. In the early stages of the pandemic, automakers drastically reduced demand for processors in anticipation of falling sales. This turned out to be premature. Sales recovered quickly and the automotive market rushed to buy back state-of-the-art manufacturing capacity. Although most of it had already been given away to other processor sectors that had their own demand. The end result is two huge markets, both of which need more chips but are already at full production capacity.

A number of minor factors have also contributed to supply and demand ending the shortage. February’s blackouts due to the cold weather brought Samsung semiconductor manufacturing in Austin, Texas to a standstill by mid-March. Taiwan is also suffering from a severe drought that threatens the country’s large semiconductor manufacturing plants. During the US-China trade war, Chinese companies like Huawei also kept chipsets and other components in stock until 2020 and 2021.

There are only so many chips to go around

It’s important to note that Microsoft, Sony, Nvidia, AMD, Apple, Qualcomm, and others don’t make their own processors. Most of the world’s leading semiconductors are manufactured by Samsung and TSMC. Although production from other manufacturing plants around the world such as NXP and Texas Instruments is also important and just as scarce. This is especially true for automotive components.

Most of the industry’s demand for all types of chipsets comes from a handful of foundries.

Chipsets for high-end computer markets mainly compete for a 10nm and 7nm production from Samsung and TSMC. Smartphone chipsets also use these manufacturing factories. Flagship-level mobile chips compete with automotive orders on 5nm assembly lines from TSMC and, to a lesser extent, Samsung.

Why not add more capacity?

Intel is an outlier. It makes its own processors and has no shortage like competing foundries. The company plans to capitalize on the current shortage by expanding its operations in Arizona and opening its foundries to take new orders from third parties. Including processors based on competing Arm and RISC-V architectures. Although it will take months for the industry to become familiar with and evaluate Intel’s tools and processes.

So why not increase production to meet demand?

Unfortunately the situation is not that simple. Fabs are complex, capital and time consuming operations that require expensive expertise and intellectual property to construct. Expanding existing production lines can take months; building new production lines from scratch can take years and cost tens of billions of dollars. As such, the Biden government’s review of U.S. manufacturing cannot help remedy the deficiency in the short or medium term.

What does the shortage of computer chips mean for products?

We have already seen that the chip shortage translates into delays, bottlenecks and price increases for products in various industries.

Automakers felt the hardest at first, as there weren’t enough chips available to complete the construction of vehicles. Research firm IHS Markit (via CNBC) expects 672,000 fewer vehicles to roll off the assembly line in the first quarter of 2021. Major brands like GM, Ford, and Tesla are all affected and will have less inventory available for purchase this year. Analysts estimate it could cost the auto market $ 60 billion this year. Toyota is weathering the storm much better thanks to a fourth month chip inventory.

In the game markets, the latest PlayStation and Xbox consoles have been in and out of stock all the time as the supply hits the market, although this has gradually improved. The situation in the PC space is even worse, as the latest graphics cards and AMD CPUs are practically unavailable. There is little evidence that this will improve by the end of 2021 or even 2022. Reputable retailers list PC products well above the manufacturer’s suggested retail price (MSRP) due to a combination of higher component costs, bottlenecks, and the end of US customs exemptions.

Products sell well above MSRP due to a combination of component cost, scalping, and the end of US customs exemptions.

The suffering is compounded by the scourge of scalping. Game consoles and graphics cards have been hardest hit by the use of bots to source limited inventory that is resold at a substantial mark-up. Sony’s PlayStation 5 continues to sell for almost double the MSRP on eBay, and graphics cards like Nvidia’s RTX 3070 can be bought for three times list price or more. Fortunately, we haven’t seen the same profit for other devices yet, but it’s a definite possibility as the shortage worsens.

The renewed profitability of cryptocurrencies contributes significantly to the demand for graphics cards and subsequent scalping. This has led Nvidia to announce dedicated mining GPUs and cut Etherum mining performance for its new RTX 3060 series. However, rising costs and limited hardware availability are driving smaller miners out of the market and consolidating the benefits at larger operations like those in China. The lack of chips even has an impact on the “democracy” of cryptocurrency mining.

What about smartphones?

With only a handful of new smartphones launching in 2021, it is more difficult to measure the impact of the chip shortage on the mobile phone market than it is in the automotive and gaming markets. However, there are already signs that similar bottlenecks might be on the way.

The state-of-the-art 5-nm, 7-nm and 10-nm mobile SoCs are competing for space on the same production lines as automotive, game consoles and graphics cards this year. Some reports are already pointing to a shortage of Qualcomm Snapdragon 888 flagship chipsets, which will have a negative impact on inventory levels. Rumor has it that this could be partly due to Samsung’s decision to skip the Galaxy Note 2021 launch.

Even with an adequate supply of 5nm processors, other components can be the supply bottleneck. Audio, power, radio frequency, and other integrated circuit components from lower cost factories still compete for manufacturing time against a variety of other components. Samsung is reportedly having issues with supplies needed for mid- and low-end production. Other sources that quote Realme (translated) refer to out-of-stock power and wireless components for their smartphones.

Small component defects not only affect product availability, but can also drive up end product prices. Previously inexpensive microcontrollers are already selling at multiples of their historical prices, and so are common components in smartphones likely.

It could take until the end of 2021 for smartphone demand and supply to regain equilibrium. Until then, we may see limited inventory and / or higher prices.

Qualcomm recognizes that there is a problem with the chipset supply. Commenting on Qualcomm’s Q2 earnings report, CEO-elect Cristiano Amon commented, “We have likely seen a shortage across the industry. It is widely used in the industry and is not just suitable for cell phones. “Amon predicts that the supply-demand imbalance” should normalize towards the end of 2021 when capacity is in place “.

Although smartphone manufacturers have so far adhered to their schedules for the release of mobile phones, the supply of processors and other components is not sufficient to increase the global inventory. This is a bigger problem for smaller manufacturers who don’t have the bargaining power of Apple and Samsung. If you read between the lines of Amon’s comment, smartphone launches will be disrupted by supply shortages during 2021. Even if supply and demand match by the end of the year, it could take months until 2022 for global inventories to catch up.

Manufacturers could end up controlling a limited supply with more restrictive regional launches. Higher prices in some, if not all, markets are also a clear possibility, especially as component costs increase. In any case, the prospects for smartphone shipments worldwide are as difficult as graphics cards and game consoles are in 2021 and possibly well into 2022.