EXPLAINER: Starving for more chips in a tech-hungry world
As the U.S. economy awakens from its pandemic-induced slumber, a vital cog is in short supply: the computer chips that power our phones and wireless networks, cars and other vehicles, and a vast number of other items we take for granted
April 1, 2021, 7:24 PM
7 min read
Share to FacebookShare to TwitterEmail this articleIn this aerial photo, mid-sized pickup trucks and full-size vans are seen in a parking lot outside a General Motors assembly plant where they are produced Wednesday, March 24, 2021, in Wentzville, Mo. As the U.S. economy awakens from its pandemic-induced slumber, a vital cog is in short supply: the computer chips that power our cars and other vehicles, and a vast number of other items we take for granted. Ford, GM and Stellantis have started building vehicles without some computers, putting them in storage with plans to retrofit them later. (AP Photo/Jeff Roberson)
SAN RAMON, Calif. -- As the U.S. economy rebounds from its pandemic slump, a vital cog is in short supply: the computer chips that power a wide range of products that connect, transport and entertain us in a world increasingly dependent on technology.
The shortage has already been rippling through various markets since last summer. It has made it difficult for schools to buy enough laptops for students f orced to learn from home, delayed the release of popular products such as the iPhone 12 and created mad scrambles to find the latest video game consoles such as the PlayStation 5.
But things have been getting even worse in recent weeks, particularly in the auto industry, where factories are shutting down because there aren't enough chips to finish building vehicles that are starting to look like computers on wheels. The problem was recently compounded by a grounded container ship that blocked the Suez Canal for nearly a week, choking off chips headed from Asia to Europe.
These snags are likely to frustrate consumers who can't find the vehicle they want and sometimes find themselves settling for a lower-end models without as many fancy electronic features. And it threatens to leave a big dent in the auto industry, which by some estimates stands to lose $60 billion in sales during the first half of his year.
“We have been hit by the perfect storm, and it's not going away any time soon," said Baird technology analyst Ted Mortonson, who said he has never seen such a serious shortage in nearly 30 years tracking the chip industry.
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IS THE PANDEMIC TO BLAME?
Sort of. The pandemic prompted chip factories to start shutting down early last year, particularly overseas, where the majority of the processors are made. By the time they started to reopen, they had a backlog of orders to fill.
That wouldn't have been as daunting if chipmakers weren't then swamped by unforeseen demand. For instance, no one entered 2020 expecting to see a spike in personal computer sales after nearly a decade of steady decline. But that's what happened after government lockdowns forced millions of office workers to do their jobs from homes while students mostly attended their classes remotely.
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ARE OTHER FACTORS ARE AT WORK?
Yes. Both Sony and Microsoft were preparing to release highly anticipated next-generation video game consoles for their PlayStation and Xbox brands, respectively, that required more sophisticated chips than ever. To add to the demand, wireless network providers are clamoring for chips to power ultrafast “5G" services being built around the world.
President Donald Trump's trade war with China probably didn't help either. Some analysts believe the Trump administration's blacklisting of Huawei Technologies prompted that major maker of smartphones to build a huge stockpile of chips as it braced for the crackdown.
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WHY IS THE AUTO INDUSTRY BEING HIT SO HARD?
Stay-at-home orders drove a surge in consumer electronics sales, squeezing auto parts suppliers who use chips for computers that control gas pedals, transmissions and touch screens. Chip makers compounded the pressure by rejiggering factory lines to better serve the consumer-electronics market, which generates far more revenue for them than autos.
