Microchips are a critical part of the technologically interconnected modern world. They’re used in everything from iPhones to fighter jets, and without them, much of the technology that makes daily life possible in 2021 wouldn’t be able to exist. Every time someone steps into a vehicle or sends an email, they are unknowingly using semiconductor technology. So, when the global supply chain of these valuable tiny chips breaks and supply starts to diminish, it’s a big problem. There is currently a global shortage of microchips.
What Caused the Microchip Shortage?
The problem appears to be due to poor planning, supply-chain complexities, and a tradition of keeping chip inventories low in critical industries due to expense. COVID-related vehicle assembly plant shutdowns further exacerbated the chip shortage issue. When production lines stopped, microchip manufacturers changed focus to consumer electronics; the sales of which were rising due to stay-at-home orders and a growing remote workforce. Leaders contend the microchip shortage is more a function of the world’s growing demand due to 5G developments, online gaming and video streaming, and the increasing complexity of modern automobiles.
Entertainment companies like Sony report that the global microchip shortage has hampered its production of new generation PlayStation 5 gaming consoles. Simultaneously, Nvidia and Advanced Micro Devices (AMD) attributed a slowdown in graphics card production to the microchip shortage. Apple and Qualcomm reported that more mobile phones could have been produced if there was a more excellent microchip supply.
The semiconductor business is built-to-order. Microchip companies don’t like to hold inventory due to price decline issues. Microchip pricing has increased due to several factors including but not limited to: warehousing issues that destroy tons of microchips stoppage of mining for the raw materials, environmental issues like an earthquake in Japan and a winter storm in Texas, and automotive and industrial the run-away segments.
The Automotive Sector
In the automotive sector, the adoption of safety-related microchip technology systems has grown explosively. Microchip components that make up the vehicle’s electronic systems will cost an estimated $600 per car by 2022. Automation, electrification, digital connectivity, and security will add more semiconductor content to automotive electronics and subsystems in the next decade. These days, electronics account for roughly 40% of a vehicle’s value, according to a comprehensive analysis from Deloitte. Automakers need semiconductors for those electronics to function correctly. Without these microchips, production lines come to a halt. Thus, the supply and demand equilibrium is askew. The auto industry, which uses tons of microchips to do everything from control antilock braking systems and navigation to deploying multi-functional user interface screens, has been the poster child for the semiconductor shortage.
Microchips and semiconductors require assembly lead times as long as several weeks up to several months. New vehicles’ demand was not estimated to be as robust in the middle of a pandemic-depressed economy. Fleet activity is increasing, as well as a strong vocational market and used truck prices. The vocational truck market is navigating its way through accumulating supply chain impediments and constraints, including those involving microchips and semiconductors, due to the steep ramp-up of production across the globe. The situation is fluid. Vocational truck demand in specific industries continues to show significant demand across diverse sectors:
Construction Industry: New vehicle technologies have a significant impact on fuel efficiency, production, weight distribution, chassis strength, drive comfort, safety, and connectivity.
Forestry Industry: New timber transport technologies help with routing, scheduling, and safety.
Utility Industry: Microcontrollers (MCUs), sensors, and memory use microchip technologies.
Oil & Gas Industry: Microchip technologies support shipping, trucking, and storing of raw materials. The industry also uses microchips for microcontrollers (MCUs), sensors, memory, automation, and navigation.
Rail Industry: New microchip technologies help with automation, electrification, digital connectivity, safety and security.
Microchips and semiconductor chips are used in several components within the vocational truck design and ecosystem, which include, but are not limited to: microchips for key-fobs affecting chassis delivery, vehicle sensors, engine and transmission controls, vehicle automation and navigation, driver health & safety, security, and notification systems.
Microchip production has become an increasingly consolidated industry. Currently, there are only three companies manufacturing microchips using the most cutting-edge technology: Samsung, Taiwan Semiconductor, and Intel. In February, Samsung filed to build a new factory near Austin, Texas. Microchip production is around three years out. Lawmakers and some microchip companies have been seeking government funds to subsidize building more U.S. manufacturing capacity, but any increased production could take years. Analysts anticipate that semiconductors will continue to be in short supply at least through the end of 2021. The world moves further into the digital realm, and the companies struggle to keep up with unexpected product demand. It will take at least three to four quarters for supply to catch up with demand and then another two quarters for inventories to replenish to relatively normal levels across customers/distribution channels.