The global semiconductor shortage and what it means for you

January 25, 2022

Learn more about how the global semiconductor shortage is impacting you.


Gloved hands holding a semiconductor computer chip 
Whether you’ve heard about it or not, it's more than likely that your life has been affected by the global semiconductor shortage.

Simply put, semiconductors are an electrical circuit that conducts electricity, and can be used to complete a wide variety tasks. Some of them help devices hold storage, some are processors such as computers, others help devices display graphics, some help large appliances understand user requests, and some even help heavy machinery send and receive information or carry out certain functions.

Because of their wide range of uses, semiconductors are now essential parts to things like cars, phones, televisions, home appliances and so much more. Since they are so essential to things we utilize within our everyday lives, some could argue that this technological wonder has become as valuable as resources like oil.

However, since 2020, semiconductors have been in a global shortage, and this shortage continues to bring up major issues for consumers and manufacturers worldwide. Read on to learn more about the current global semiconductor shortage, how it's affecting you and when it may come to an end.

Why is the semiconductor chip shortage happening?


There are many different theories on WHY the global chip shortage of semiconductors is happening, but one of the non-disputable answers is, of course, the ongoing pandemic.

COVID-19 pandemic and lockdowns


In 2020, the world came to a crawl as people everywhere were put on lockdown and forced to stay inside of their homes. Subsequently, the use of home appliances and personal devices skyrocketed as people looked for ways to stay connected with their loved ones and pass their time.

With businesses small and large having to adapt to a work-at-home atmosphere, the need for tech devices grew immensely because of companies sending laptops, phones, and other devices to their (now remote) employees. This created a huge demand for products that tech companies were not prepared for, which then trickled down to the increased need for semiconductors.

With this huge and unexpected demand happening, the most obvious solution would have been for semiconductor makers far and wide to start manufacturing as many chips as possible, but there was another problem in sight…

Limited manufacturing companies


There are currently only two major companies in the world that hold the market on producing advanced semiconductors in a way that’s affordable. That title goes to Taiwan’s TSMC and South Korea’s Samsung.

Manufacturing close to 70% of the world's semiconductors, these companies (based in Asia) have beaten out tech giants like American-led Intel and quickly became who the world is dependent on for semiconductors.

Unfortunately, caught off guard by the pandemic and an unexpectedly low workforce, these companies were also unable to keep up with even standard production of their chip supply chain as the pandemic first started. And as demand for them rose and they lost their ability to keep up, there was reduced availability of semiconductors.

Additionally, because of the high requirements to join the semiconductor industry (such as attaining certain industry knowledge, investing a whopping $10-12 billion in USD, and spending a minimum of 3 years in the field before being eligible to sell), there have not been any opportunities for new companies to step up and help fill the void.

Which industries are affected by the semiconductor shortage? 


Whether you already knew about the global shortage of the semiconductor supply or not, it’s more than already affected various parts of your home and work life because of the worldwide continuous push toward a more digital life.

Here are some industries that have been affected:

Car industry and automakers


If you’ve been out shopping for a car recently, then you’ve likely either seen the emptiness of a showroom floor or you’ve heard a salesman or two tell you “there’s a car shortage happening!” And they’re not lying!

In the early days of the pandemic, car manufacturing (aka automakers) came to a hard halt, and during that time, because many people were home and their needs for home enhanced electronics had risen, semiconductor manufacturers began sending all available semiconductors over to companies producing things like phones, computers or even televisions.

However, those semiconductors were and still are a key element in cars produced today. On average, there are typically microchips in cars that help them do standard things like locking your door, winding down/up your window all the way over to high-tech things such as providing you with GPS, satellite radio, touch start buttons, and much more. With fully electric vehicles, the need for these microchips increases dramatically.

When makers in the auto industry came back to work ready to move forward, they faced a big problem with those chips being in short supply as it drastically reduced production in even the biggest name brands in the car industry such as Ford and Toyota. This caused not only a delayed recovery in production but also caused some cars to be sent to dealerships without their full upgrades, causing customers to have to return or wait to finally get their vehicle.

Dealerships around the world are only now beginning to catch up on back orders, thanks to alternate options in car production. However, consumers will find that they’re still receiving the short end of the stick.

New cars now cost sometimes 2 to 3x more than the original price to account for the upcharge in semiconductors and other parts. And sometimes purchasers have to wait months for car orders to come in as manufacturers wait for computer chips in cars to be made available. With these issues, consumers are certainly paying the price.

The impact of the semiconductor shortage on the auto industry doesn't just affect consumers looking to buy a new car; it the shortage has also impacted car rentals. Auto rental agencies are feeling the shortage, which means rental car availability and cost have both suffered in recent months (read more about that topic in our recent blog here).  

Home appliance industry


If you’re a homeowner looking to upgrade your home or simply replace a failing appliance, the semiconductor shortage will be sure to rear its ugly head your way as you head into stores or shop online to look for your replacement too.

Because of the world's consistent push towards a more digital life, most appliances in the average household now have a semiconductor chip placed within it in order to provide the “tech” enhancements that you’ve come to expect, such as smart home features and products.

Whether it be a smart fridge that allows you to write messages or take pictures, a washing machine that plays a tune or automatically switches to certain settings based on your actions or even an air conditioning system that you can control from your phone, all of these modern-day appliances require a semiconductor.

However, because of the ongoing pandemic and many people needing their home life to now fit their new frequently at-home lifestyles, appliances have become in high demand. But inventory levels are historically low.

The bad news is that the appliance industry doesn't have as many alternate options available to it as the car industry does. This means that if the shortage isn’t addressed soon, many of the modern appliances you love now may have to be replaced with their predecessor models (i.e. no tech.)

This past holiday season you may have found yourself in one of two predicaments as you shopped for the young ones in your life. One, you may have found yourself asking "why are electronics getting more and more expensive?" as you saw gaming systems or apple phones 3x their normal price. Or two, you may have not found any of your desired electronics available on the shelves at all!

Both of these situations are due to the global semiconductor shortage! During the pandemic as the use of consumer electronics skyrocketed, TVs, phones, computers, gaming consoles, and most entertainment devices flew off the shelves. Since then, manufacturers have not been able to keep up with demand. Attributing to the slow return is of course the hobbled chip production line (most manufacturers are struggling to refill their workforce) as well as record-breaking demand.

Unfortunately, things are worse for this industry than it is for that of the car and appliance industry as most gaming consoles, smartphones, and computer companies are more likely to halt the release of any new products until semiconductor pieces are able to be replenished. However, if you’re looking to purchase current models of their products, just prepare to wait a few extra months to actually get your hands on your order.

Looking ahead on the global shortage


So…is the semiconductor global shortage coming to an end any time soon? It’s hard to say. Depending on the expert you ask in the industry, you could easily get a confident yes or a resounding no.

Based on last year's data, some experts do believe that the shortage is finally coming out of its darkest days and coming to an end. They believe that chip manufacturers are investing in order to produce more parts. And as people continue to get accustomed to this new way of life, the demand for high-tech at-home appliances and electronics are leveling out, which will subsequently give chipmakers a good lead on catching up.

For these reasons, experts in the field have estimated that the shortage should be over by the end of next year (2023) or early into the beginning of 2024.

On the other hand, some experts are arguing that due to the progressive movement towards a fully digital life (aka the use of artificial intelligence) and the increasing odds of another shutdown, global recession, or world-shaking event, we could head straight into another equally damaging global shortage or one that’s drastically worse.

Key takeaways


Semiconductors and their deeply integrated place in our modern world is not necessarily common knowledge for many people, especially in times where there is no apparent shortage. As long as products are functional and available, there isn't much of a reason to look further into the matter apart from curiosity. 

But understanding just how many different products, services, and industries rely on a steady supply of silicon is key to understanding how the shortage can impact you - not just in brief moments when you're researching a big purchase such as a car or new home appliance, but every day. 

When the cost of oil and gas increases, you see the cost increase at the pump, but you also see it when you order a pizza delivery, or when you buy groceries at the store. Because most companies rely on transportation and gasoline, the increased costs are felt across the board. 

Similarly, the semiconductor shortage has an impact that reaches further than simply consumer electronics. Many products require them in some way, and even products and services that don't directly need chips may use them at some point along the way, whether it be in production or operations. 

At the end of the day, the individual increase in cost is likely small - a few dollars here, a few cents there - but when applied broadly, it can begin to add up. That's why it is important to understand the true impact of the semiconductor shortage and keep up with the latest information about it. While no one can say with certainty if or when the semiconductor shortage will end, understanding the impact can help you better plan your finances and budget accordingly. 

Consumer electronics impacted by semiconductor shortage

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by Geoff Ullrich

About the Author

Geoff Ullrich is a writer and Content Marketing Specialist at Germania Insurance.