Maybe you have discovered that prices for parts are too damn high, or that they’re simply unavailable. You can thank a worldwide computer chip shortage for the problem, and it’s not going away any time soon.
What’s causing this problem is the perfect storm of supply meeting demand, a pandemic, and a well-timed factory fire that has supplies short and prices high.
At the heart of this worldwide processor shortage is a phenomenon called the “bullwhip effect.” It was named by Stanford professor Hau Lee, who was studying why there was a wild swing in the availability of disposable diapers (of all things) even though the demand was fairly consistent.
It turns out that, like a slight flick of the wrist holding a bullwhip, the slightest change in the supply chain reverberates with exponential consequences. So when there was a slight uptick or downtick in the demand for diapers, the result would reverberate down the chain, as retailers and wholesalers adjusted their orders in response. Trouble is, they also add a few percentages because of not knowing what’s happening. The result would be larger swings in demand that equated to shortages. The result is taking actions that can make a shortage worse.
Now take that thought and put it in the context of recent events. Before the pandemic, computer enthusiasts were having trouble finding video cards, because they were being bought up by bitcoin miners to generate cryptocurrency. The result was a shortage that sent video card prices skyrocketing.
A few months later, things began to ease some, as essential industries were allowed to resume. People also began to work from home, and kids were involved in distance learning.
This slight flick or the wrist opened up a floodgate as manufacturers of everything from phones to computers to cameras began to ramp up to meet demand. With people working from home, there was suddenly a demand for new consumer products. The result was a crush of orders from suppliers like Nvidia, ATI, and others to meet demand. Those companies, in turn, made orders for semiconductors and processors to companies like Samsung and Intel. That created even more demand.
“The problem right now is there’s a lot of panic buying going on,” Harvard Business School professor Willy Shih told Quartz. “If you’re HP or Dell or Lenovo, you’re thinking, ‘I’m going to make sure I have enough chips on hand because I’ll be damned if I let my competitors gain market share because they’re in a better supply position than me.”
On top of that, there was a massive fire in Japan that closed a major factory that supplies chips to the auto industry, and there’s an ongoing drought in Taiwan, which impacts companies that need water to create semiconductors. The result has been a perfect storm of events that have created a serious shortage of computer processors and chips that is impacting all industries.
Just ask my teenager how long it took him to finally get a Playstation 5. The demand is simply bananas.
Even though the world seems to be making its way out of the pandemic now, with infections falling and people going back to work, analysts believe the chip shortage will last throughout 2021, and maybe into 2022.
This may explain why several car manufacturers have shut down auto lines, why Canon and Nikon have delayed at least two camera models, and why Apple didn’t announce the M1X at the Worldwide Developers Conference, when every tech rumor suggested at least three new Macs were to be announced.
Semiconductor companies have even gone so far as to prioritize orders and give companies what they need, not what they want, in terms of quantities. Hopefully, that kind of management will make the shortage easier to cope with, if they can do it correctly.
And here’s where it gets even more interesting. Several semiconductor companies are now planning to build factories in order to meet the demand. However, designing, building, and tooling up a factory for production will take at least two to three years. On top of that, companies like Intel want billions in public subsidies to absorb the risk of building new factories in Europe and elsewhere.
“What we’re asking from both the U.S. and the European governments is to make it competitive for us to do it here compared to in Asia,” said Intel CEO Pat Gelsinger. Gelsinger is asking for eight billion Euros in subsidies, and even more to build two plants in Arizona.
Of course, by that time, the shortage will likely have abated, leading to a surplus of product and a drop in prices. Prompting the bullwhip to crack in the other direction.
As a result, users looking to upgrade their computers, cameras, and other devices may want to plan to spend more to do so, or postpone those upgrades until such time as supplies can meet the demand.
