According to a recent report published by the Wall Street Journal, there has been a decline in silicon chips used in the tech industry and automotive companies, in manufacturing electronic devices. This has seen the price of the commodity rise sharply, prompting these industries to consequently raise the prices of their products, including printers, mobile devices, and personal computers. As a result, consumers have to dig deeper into their pockets amid harsh economic times. But, what has contributed to the chip shortage that’s being experienced currently?
Here are some important facts you need to know about the chip shortage, including causes, effects, and probable solutions.
1. Increased demand for chips by tech and automotive companies
As companies invent new and high performance devices, they have to ensure that the chips used are sourced from the most reliable sources. However, renowned companies that produce these chips are not able to produce them to meet the ever increasing demand.
These companies are unable to meet the demand of their consumers since they can’t make these chips fast enough to meet the market demand. The demand for chips is estimated to have increased by 20% in 2021, and is likely to increase by an additional 9% by 2022, according to Yahoo Finance. This could destabilize the chip market a little longer, as companies strive to look for long-term solutions.
2. Chips require advanced technology to produce
Chip manufacturing companies have to ensure that they produce high quality products that meet their customers’ needs and specifications. As such, they have to employ advanced technology to ensure that chips produced do not malfunction and affect tech companies’ business image. In addition, chips are delicate, and thus require careful handling during manufacturing, packaging, and transportation.
As a result, chip manufacturing companies have to source for the most reliable and quality materials in the market, and also employ the latest technology in producing these products. They also have to handle the products with the utmost care to ensure that they get to the customers while still in good shape, and this adds to the cost of production and extended time of production. This cost is eventually passed over to the tech companies, and this translates to higher costs of electronic devices.
3. Increased demand for electronic devices
As the world embraces technology, the number of people working online has increased by approximately 8.2%. Similarly, most companies and organizations across the world have embraced remote work stations, and this has equally necessitated the use of modern technology to facilitate communication and other business operations including cloud computing.
Consequently, these individuals and organizations have to purchase devices that will facilitate the new face of business that relies on technology. As a result, chip manufacturing companies have to be at speed with this increased demand, which isn’t an easy task.
As the demand for chips increases, chip manufacturing companies may shift the burden of the extra cost of production to their direct consumers. Similarly, manufacturers of tech and automotive products will increase the cost of their products, which ultimately affects retailers, thereby affecting their overall business sales.
However, big corporations may not feel the effect as much as smaller organizations. Corporations such as Apple Inc. can negotiate bulk discounts and still acquire the chips at a much more reasonable price, while smaller business enterprises struggle to make their businesses sustainable.
As a result, there may be a shift in the demand curve, with fewer people purchasing such products, leading to reduced sales volumes. The extra cost being passed down to the tech industries by the chip manufacturing companies will eventually be passed down to the end user, who is the ultimate beneficiary of the whole supply chain. As such, prices of electronic devices might scale up, and this has a direct impact on the end user, who sets the pace based on demand.
Nonetheless, chip manufacturing companies might enjoy the moment, as they will be better positioned to fetch enough money to improve their research and development. This will consequently help such companies increase their revenue.
Besides the challenges posed by chip shortages, it may be a wakeup call for companies to try out new inventions. The shortage of silicon chips has prompted some stakeholders to consider other ways of taking chip technology to a whole new and exciting level.
As a result, some chip manufacturing companies have hinted at embracing new technologies that would see the elimination of paper-based technologies and digitize the entire process, as reported by Forbes.
Other suggestions include recycling chips that are usually dumped before their lifespan expires. This could curb the shortage, while also reducing environmental pollution, albeit temporarily, as manufacturers look for a long-term solution.
The Forbes report further suggests that more advanced companies such as Navitas, are considering replacing silicon, which has over the years been the major raw material in the production of chips, with other equally viable materials such as gallium nitride. This proposal is based on the argument that gallium nitride could be a cheaper and quicker way to produce chips on a large scale, in order to meet the high demand.
In addition, the chips produced will be smaller and lighter compared to silicon chips. However, this may not be actualized until 2025, leaving major chip manufacturing companies in a dilemma, and this can only mean that the shortage may persist a little longer.
Any shortage has both positive and negative aspects. So, what does the price increase mean for your business? At OneSource Technology, our IT professionals in Wichita, KS, will help you understand the importance of investing in the right technology, that will enhance your business productivity, and improve your business productivity levels. We are committed to ensuring that you make the right investment choices in terms of technology that will not only be viable in the current business trends, but also sustainable for your future investments.
If you are stuck, wondering what’s best for your business, OneSource Technology has got you covered. With our wide range of IT solutions, we can partner with you to help your business move a step ahead of your competitors. Contact us today on (316) 788-1372, and our IT professionals will offer you the help you need.