Semiconductor chips are in almost everything these days.
As Glenn O’Donnell, a vice president at Forrester Research, put it, “if it has a plug or a battery, it is probably full of chips.”
The global chip shortage that is jamming up auto manufacturers is rippling across nearly every industry that makes or uses tech-enabled products.
In particular, analysts say the boom in cloud computing and cryptocurrency mining, as well as the embedding of smart features in everything from doorbells to dishwashers, has led to a gold rush in the sector.
But a combination of factors have pinched the supply as demand continues ramping up, leading to severe shortages that industry leaders and analysts say could drag out into 2023.
“We are looking at couple of years… before we get enough incremental capacity online to alleviate all aspects of the chip shortage,” IBM President Jim Whitehurst told the BBC. His company licenses microprocessor technology to the world’s leading chip makers.
Last week, Reinhard Ploss, CEO of German chipmaker Infineon, told CNBC his industry has never seen conditions like these, but that two years to normal seemed “too long.”
Other firms have painted even rosier forecasts – Taiwan Semiconductor Manufacturing Company (TSMC), the largest chip maker, said it expects to catch up with auto industry demand next month, and Cisco CEO Chuck Robbins, told the BBC the shortage would wind down later this year.
Analysts, however, are skeptical.
“Because demand will remain high and supply will remain constrained, we expect this shortage to last through 2022 and into 2023,” O’Donnell wrote on a Forrester blog. “We see nothing but boom times ahead for chip demand.”
“It’s not just autos. It’s phones. It’s the internet of everything. There’s so many goods now that have many more chips than they ever did in the past,” he said. “They’re all internet enabled.”
New production is coming online, with a $20 billion spend from Intel and a $28 billion investment from TSMC, but that does little to solve the immediate challenge facing the market right now.
Nobody is literally filling trash bags or gas cans with semiconductors, but Credit Suisse’s director of global economies and strategy, Wenzhe Zhao, said last week that inventory hoarding along the production chain is making a tight supply situation even worse.
For now, Forrester’s O’Donnell recommends tech buyers be patient, pay more, pick an alternative product or service, or make do with older tools until things return to normal.
An ongoing computer-chip shortage has affected cars, iPads, and dog-washing technology alike. Chipmakers like Intel had already seen production issues pre-pandemic, but as with many industries, COVID-19 brought a variety of new supply-chain issues. The chip shortage is a problem for consumers wanting basically anything with a computerized component, which is much of the economy. Take cars as an example.
The semiconductor shortage has hit automakers the hardest. In January, the consulting firm Alix Partners estimated the automotive industry would lose $61 billion in revenue from the shortage this year. As Insider’s Katie Canales reported, demand for chips has gone up as consumers scrambled to buy cars and other technologies that use them.
But as more cars went into production, chip competition went up. Since then, many carmakers have been forced to shut down plants and prioritize which models they produce, while car prices at dealerships have continued to go up.
Buyers are still looking for vehicles, creating a competitive used-car market. As USA Today reported, used-car prices are on the rise as the aforementioned chip shortages affect new-car production, and buyers have turned to older ones instead, while Axios reported the average price of a used car has hit $17,609.
A UBS note estimated that in April, used cars saw their largest monthly price increase in 68 years of tracking, with prices rising between 8.2% and 9.3%.
If you’re looking to rent, you might also be out of luck: Insider’s Brittany Chang reported on the “perfect storm” hitting rental cars right now, with prices surging and demand increasing. Americans are itching to go on vacation this summer, as more people are vaccinated and some restrictions loosen. That’s leading to far more demand — but rental-car companies had sold off parts of their fleets early into the pandemic, leaving fewer cars to go around.
It’s not all bad news for used-car lovers, though: As USA Today reports, the trade-in market is hot, too, meaning your old car could be worth more right now.
Gas prices have skyrocketed in recent months, jumping 22.5% in March from the previous year, according to the US Bureau of Labor Statistics’ Consumer Price Index. Much of the surge in gas prices started with the extreme Texas freeze, which halted a fifth of the country’s oil-refining capacity in its tracks for weeks at a time.
Plastics and palm oil
The devastating winter storms in Texas also left their mark on the plastics industry. As Insider’s Natasha Dailey reported, the state is a key plastics exporter — and the storms made many plants, which are difficult to reactivate, press pause.
According to the Financial Times, rising plastic prices have led to an increase in packaging costs. Citing data from Mintec, the Financial Times reported that those costs have increased by nearly 40% from the start of 2020, marking “historic highs.”
Palm oil, which is in a majority of those packaged products, also saw its prices climb, according to the Financial Times. That’s due to yet another labor shortage; the industry had already been contending with finding more sustainable production methods.
In September, Insider’s Rachel Premack reported that pay for truck drivers was on the rise, coming in at “record-smashing levels.” But the pay hike — and increased demand — comes after an exodus of drivers in 2019; Premack reported at the time on what some called a “trucking bloodbath,” as trucking companies saw profits fall, with some even going bankrupt.
Now demand is surging, according to The Journal, and if everything continues as is, that gap could deepen.
Homes and vacation houses
The US was facing a shortage of 3.8 million homes as of April, according to Freddie Mac. Home builders have been struggling to keep up with demand as remote work fuels interest in spacious housing, with house prices rising at their fastest pace in 15 years, The Wall Street Journal reported. Lumber prices are also driving the cost of new homes even higher.
Even vacation-home rentals are at an all-time high. A house in the Hamptons rented for $2 million this summer, and 85% of vacation rentals in popular destinations like Cape Cod, the Outer Banks, and the Jersey Shore are booked through August, according to the rental site VRBO.
If you’re wondering why the houses around you are getting more expensive, look to their component parts. No, seriously: Lumber prices have soared, and, as Insider’s Ayelet Sheffey and Libertina Brandt reported, builders are even increasing house prices in an attempt to offset demand.
It’s due to another pandemic disruption, as lumber mills were forced to temporarily close for safety concerns. When they reopened, they couldn’t keep up with a scorching-hot housing market, goosed by a work-from-home economy, record low mortgage rates, and the need for personal space during the pandemic.
According to an April analysis from the National Association of Home Builders, soaring lumber prices added $36,000 to the cost of a new home. Lumber prices “remain stubbornly high,” according to the report, due to mills shutting down, unexpected demand from big-box retail and DIY-ers, and tariffs imposed on Canadian lumber.
Household products like toilet paper and tampons
Many household goods including toilet paper, diapers, and tampons are also facing supply problems.
One of the biggest producers of the pulp used to create toilet paper told Bloomberg that port delays and high shipping costs are causing companies to push delivery dates back months.
The work-from-home lifestyle helped the furniture industry boom but to such an extent that customers are seeing delivery dates that are months out.
In February, La-Z-Boy executives said customers could expect delivery dates that are five to nine months out from their order dates. Other furniture companies like Kasala, a Seattle-based chain, said they don’t expect to get furniture parts until at least December.
The furniture shortage has been exacerbated by a spike in homeownership, as the number of available and unsold homes sits at record lows. In other words, a lot of new homeowners are waiting a long time for their new living-room sets.
Bacon and hot dogs will likely be in short supply this summer.
The pig shortage dates back to the onset of COVID-19 and outbreaks in at least 167 meat-processing plants forcing almost 40 plants to close as of June 2020. As vaccination rates pick up and people prepare for summer vacations and cookouts, analysts told Insider’s Natasha Dailey demand will outstrip supply.
With pork companies still struggling to overcome lower production rates in 2020, the matter only intensified when high instances of disease hit the hog population this past winter.
Some companies are already seeing the impact on their shelves. In March, Costco said its supplies of cheese, seafood, and olive oil were running low.
General Mills said it has been forced to raise prices due to the delays increased shipping costs. Coca-Cola also raised prices to combat the supply-chain crunch. Neither company specified which products would be affected.
Coffee has also been hit by delays, Bloomberg reported in March. Peet’s and JM Smucker, the brands behind Folgers and Dunkin’ coffee, have said they’re facing rising costs. Reuters reported that in February, port delays pushed coffee prices to their highest point in more than a year.
This summer pool owners will see the worst chlorine shortage in US history, according to CNBC.
Supplies of the chemical have been strained since a fire at the chlorine manufacturer BioLab in Louisiana in September. The price for chlorine used in pools has nearly doubled this past year and is expected to rise even more to meet demand this summer.
Corn is a key crop for many products, including fuel and different foods. As supply concerns loom, corn prices are popping off, according to Axios.
There’s a few reasons that demand is so high: After an outbreak of swine fever in China, pig herds were “decimated,” according to Axios, leading to huge corn demand in China. That spike in demand is coupled with corn crops in Brazil and Argentina experiencing both bad weather and pandemic-related labor shortages.
Now corn prices are on a record-setting clip, rising by 16% in April alone.
And, as Fortune reported, there could be a domestic supply issue too. Droughts and a rough winter are both concerning — and if American crops can’t fill in the gaps, prices could rise even more.
Finally, a commodity unlike all the others is in surprisingly short supply: workers.
Major labor shortages are hitting businesses across America. As Insider’s Kate Taylor reported, chains like Dunkin’ and Starbucks are struggling to find workers — leading to reduced hours and hesitance on opening indoor dining back up.
There’s a few possible reasons that unemployed workers are opting not to return, according to Insider’s Ayelet Sheffey. They include workers making more on unemployment benefits than in their prior work as well as continued concerns over COVID-19 and the need to provide childcare at home.
It’s an effect caused over time by pandemic-driven shutdowns and soaring demand for products that need chips.
But one question that has emerged during the crisis is where chips are produced – and why the US doesn’t manufacture much of the global supply.
Here’s why it doesn’t.
Chips are difficult to produce, and it’s cheaper for US companies to outsource
In 1990, the US produced 37% of the world’s chip supply, according to a September 2020 report from the Semiconductor Industry Association. But now, the country is responsible for just 12% of global chip production.
Seventy-five percent of the world’s chip manufacturing comes out of Asia, per the report, and China is positioned to become the largest chip producer by 2030.
Why the decline in the US? It became cheaper to build chip facilities in countries outside of the US. Those foreign governments offer more attractive financial incentives to construct semiconductor factories, like tax breaks and grants. There’s also less regulation in places like Asia. On top of that, there aren’t as many jobs in the US created to run such high-tech factories.
Some of the country’s largest chip manufacturers are also some of the biggest in the world. Intel still produces much of its chip supply at home, as the Wall Street Journal reported. But other major US chip producers outsource manufacturing to companies in Asia due to costs. One of those foreign contract companies is Taiwan Semiconductor Manufacturing Company, which produces more than half of the world’s computer chips and is also Apple’s primary supplier.
Making computer chips is a complex process. It’s also difficult and expensive to build new facilities to manufacture the vital silicon component, which means companies have to rely on existing plants. A new semiconductor factory can cost up to $20 billion, as ON Semiconductor CEO Keith Jackson wrote in Fortune, and that price tag is much higher in the US.
There are economic and national security benefits to ramping up US chip production
There could be risks in depending on foreign chipmakers if the US continues to fall behind China in the chip race, as the Journal notes.
President Joe Biden is aware of the issue and the threats posed by relying too heavily on foreign manufacturing. As part of Biden’s $2 trillion infrastructure plan, there’s a $50 billion allotment for domestic chip manufacturing incentives.
In a Monday meeting, Biden said the key to navigating the current chip shortage crisis is to invest in the country’s chip production.
“We need to build the infrastructure of today and not repair the one of yesterday,” Biden said, according to NBC News. “The plan I propose will protect our supply chain and revitalize American manufacturing.”
But as Recode notes, it won’t be a simple task to transition reliance to homegrown chip production. There will be a handful of factors to consider over time, like weaning off of foreign contract manufacturers and ensuring there are enough US workers to power new facilities.
These chips have become a crucial part of the supply chain.
Car companies like Ford use them to power the modern-day technology in their vehicles – the engine, Bluetooth capabilities, seat systems, collision and blind-spot detection, transmissions, WiFi, and video displays systems all run on the chips.
And the silicon components are what power the high-tech gadgets from companies like Apple that we use every day. The upgraded technology in gaming consoles and 5G smartphones in particular require a lot more power, and therefore rely more on chips than previous generations.
Automakers like General Motors, Toyota, Ford, and Subaru, to name a few, were forced to close factories around the onset of the pandemic. When the factories reopened, customer demand for cars had skyrocketed as people, stimulus checks in hand, jumped at the opportunity for low-interest rates and a way to get around that didn’t involve mass transportation.
The shortage doesn’t look like it will let up any time soon
Computer chip makers are running at maximum capacity and it’s not feasible for companies to build factories to compensate for the increase in demand, Bloomberg has reported.
Phone makers like Apple are more prepared to pay higher prices for the chips than automakers are, according to an analyst who spoke to Bloomberg. That doesn’t mean phone makers haven’t been negatively impacted by the chip shortage though – Apple reportedly faced supply issues for chips to power its 5G-equipped iPhone 12 models that debuted in October.