Why is there a silicon chip shortage? Three factors are to blame

It’s not just computer makers that are suffering. Even car companies have had to pause the production of vehicles because they can’t get access to chips.

Why is there a silicon chip shortage? 3 factors are to blame
[Photo: RainerPlendl/iStock]
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Everyone from carmakers to smartphone companies are having the same problem: They can’t get enough semiconductors to put into their products. And don’t just think this means laptops and smartphones. A lack of chips has resulted in some major companies having to pause the manufacturing of products you might not necessarily think of when it comes to semiconductors—like cars, for example. Both GM and Ford have had to shut down the production of some of their models recently because they didn’t have the computer chips the cars required.

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And this lack of semiconductors isn’t just a problem for manufacturers. The Biden administration is so worried about it that the president has signed an executive order calling for a review of the semiconductor supply chain.

So just what is the problem? It comes down to there main factors, according to MarketWatch:

  • The COVID-19 pandemic: It should be no surprise the pandemic is involved somehow. The pandemic led to lockdowns and an increase in remote work. This led to an explosion of people buying new gadgets to get work done or just help pass the time. Gadgets have semiconductors and . . . well, you get the idea. Supply just couldn’t keep up with demand.
  • Limited manufacturing: Speaking of supply and demand, the capabilities to create semiconductors also slowed thanks to factories that had to shut down or limit the number of workers in a plant at any one time over COVID-19 concerns. So as the pandemic was causing people to buy more gadgets than ever, it was also reducing the capacity of manufacturers to make the semiconductors that power those gadgets.
  • The U.S.-China trade war: Trump’s trade war with China is the final factor. And it’s one the Biden administration has inherited. Just before Christmas, the U.S. Department of Commerce blacklisted the largest Chinese semiconductor manufacturer, Semiconductor Manufacturing International Corporation (SMIC), from acquiring U.S.-based parts and tech that are required to produce chips that are 10 nanometers and smaller. As most smartphones and gadgets use 10-nanometer and smaller semiconductors, this supply-chain constriction meant companies lost easy access to products from one of the biggest semiconductor manufacturers in Asia.

When will the semiconductor supply chain improve? Analysts told MarketWatch that the chip shortage will probably last, at least, until the end of the year.

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