Unprecedented chip famine threatens business outside tech firms

With global semiconductor manufacturing at capacity and demand at an all-time high, chip shortages are putting the squeeze on businesses around the world.


We now sit comfortably in February 2021 and it is still virtually impossible to walk into a store (or visit an online retailer) and purchase a new game console or desktop GPU. During the launches of these new products last year, many assumed that the lack of availability was mostly due to release window hype and that stock levels would normalize once the holiday season passed. That future never came to pass. Production never caught up to demand and the demand shows no signs of faltering. The world is now sitting in the middle of a chip famine and the silicon shortage is now disrupting everything from iPhone availability to automobile production.

How did we get here?

A motherboard socket for an Intel CPU

Historically, most chip famines can be traced back to singular events. In 1993, the DRAM chip famine was triggered by a factory explosion in Niihama, Japan. This factory was responsible for producing most of the world’s supply of an epoxy resin called cresol, which is used to create the black enclosures you see covering integrated circuits. The resulting DRAM shortage spiked new PC prices for more than a year. Following the 2011 earthquake in Japan, the market saw disruption in NAND and computer display supply. 

Our current chip famine cannot be attributed to a single event, but rather a mixture of conditions that have led to what will inevitably be the most impactful chip shortage the world has yet encountered. The largest contributing factors to the current situation are the COVID-19 pandemic and overreliance on outsourced semiconductor fabrication suppliers.

As with just about all aspects of everyday life, the COVID-19 pandemic had enormous consequences on semiconductor supply. As companies struggled with shifts in labor availability and logistical strategy alterations to accommodate health and safety concerns, production efficiency took a hit. The world couldn’t simply operate the same way it had prior to 2020.

Large chunks of the global labor pool were forced to begin working from home via telecommuting. While such arrangements were already commonplace for some segments of the media and tech industry, the reality is that most people were under-equipped for working from home. Naturally, this spiked consumer demand for new PCs and laptops. 

In 2020, new computer sales were up for the first time in over a decade. Auxiliary items such as microphones and webcams disappeared from shelves in a few short weeks. The unprecedented demand left people relying on scalpers and secondhand markets for items that had never previously been hot commodities. Just like PCs and laptops, those webcams are full of chips to process audio and video signals. Chip supplies took a big hit while market pricing for PC components began to rise in turn with the demand.

Not only were people forced to work from home, but they also had to spend all their leisure time indoors. This spiked demand for streaming devices such as Roku, tablets, and video game consoles. PC gaming had already been enjoying a multi-year growth period and home confinement pushed more people to buy or build gaming PCs. Going to the movies, concerts, or bars were no longer viable options, so the public turned to digital entertainment.

Heading into the 2020 holiday season, both Sony and Microsoft were preparing to launch new gaming consoles. Both the PlayStation 5 and Xbox Series X were built from similar underlying tech from AMD. The consoles make use of CPUs and GPUs using AMD’s latest designs, similar to the desktop PC products that the company was also launching in October and November of 2020. NVIDIA wowed the market with the unveiling of its RTX 3000-series GPUs in mid-September. Consumer hype for such products would be high in any random year, but in late 2020, the appetite for gaming hardware was insatiable.

None of these companies make their own chips. Taiwan Semiconductor Manufacturing Company (TSMC) was contracted to fab the chips that would go into the PlayStation 5 and Xbox Series X, as well as AMD Ryzen CPUs and Radeon GPUs. They also produce a massive quantity of chips for Apple to power iPhones and iPads. They would have been tapped to fab the RTX 3000-series GPUs for NVIDIA, but TSMC was already at capacity. Samsung got the NVIDIA contract, though their fabrication plants are not as advanced as those operated by TSMC, meaning the resulting output is less efficient and in smaller usable quantities.

Could these companies have simply moved to a different fabrication partner? It isn’t that easy. Advanced designs like those in the new consoles, iPhones, and desktop GPUs require years of development and are custom-tailored to the strengths of a particular fabrication process. AMD cannot simply order fabrication time at a different facility for the console chips it wants to produce because they were designed specifically for TSMC’s 7nm fab process.

Chip producers such as TSMC are always improving and shrinking their fabrication lines. Each time they can successfully shrink their process, more transistors can be physically fit onto the silicon wafers that chips are made from. The more dense and complex a chip is, the faster and more energy-efficient it can be, driving computing power forward. Often, existing fabrication lines are re-purposed to produce chips that don’t need to be as complex. 

For example, Intel is one of the few companies that produces its own chips at its foundries. They use their most advanced fabrication lines for their new CPUs and use older lines to produce less-complex chips such as storage controllers and modems. Intel had a stronghold on the consumer and server CPU markets as recently as 10 years ago, but have lost market share after difficulties transitioning their fabrication lines to a smaller process caused extensive delays in introducing new CPUs. Intel will reportedly be using fab time at TSMC later this year to reduce some of the strain on its own lines. 

The backup on the production side of things is also putting a strain on customers who traditionally rely on chips that don’t need to be as complex as cutting-edge mobile or desktop CPUs. The auto industry has had an increasing reliance on semiconductors and microcontrollers for years now. While cars used to be relatively simple machines in the 1960s and 1970s, they are now loaded with complex computer systems and integrated circuits that hold control over everything from windshield wipers to ignition timing. 

The modern vehicle is beholden to the computer chip. New models in production are carefully designed down to the last millimeter and typically have a series of microcontrollers that must work in tandem. Having a production line be short on a single chip can render an entire vehicle inoperable or unsellable. If General Motors or Ford cannot complete their vehicles, they can’t sell them. These companies also lack the pull at the leading semiconductor fabrication lines to have their orders take precedence over someone like AMD or Apple. 

The orders that end up filling iPhones are massive in size and profit margin compared to the simpler chips that may operate the turn signals on a Ford F-150. So the automakers cannot do much more than wait. With fewer new vehicles being produced, market pricing on dealer lots is now creeping up into absurd territory. I shopped around for one of Toyota’s RAV4 Prime SUVs. It is a newer hybrid version of the RAV4, one of the most popular and ubiquitous vehicles on the planet. These models have a $41,000 MSRP, but I was unable to find a dealer within 1500 miles that would sell one for under $55,000 (if they even had stock).

The chip shortage is forcing the automakers to shut down operations at multiple plants. They may not reopen any time soon, leading to further supply shortages and the cascading effects these shortages have on the greater economy. While gaming console and gaming PC hardware scarcity has been a serious bummer these last few months, the underlying problems have worsened to the point that jobs and livelihoods are at stake. It isn’t just the automakers that will have to endure this squeeze. 

How long will this last and can it be fixed?

The current forecast for our current chip famine likely extends through 2021. AMD CEO Lisa Su explained last month that her company's supply woes should be expected to run through 2021. With so much of AMD’s output tied to TSMC, it is likely that most companies tied to the Taiwanese firm will share a similar experience. iPhone 12 supply is expected to run incredibly thin in the coming months and its own debut was delayed last fall due to manufacturing delays.

The solution to the problem isn’t as simple as one would hope. In theory, the larger players in the semiconductor fabrication industry would simply open new foundries and make more chips. This isn’t possible in the near term as construction and expansion of such facilities is a multi-year undertaking where gambles on the future needs of industry must be made.

Unsurprisingly, the financial pain being experienced by the automakers has drawn attention from Washington, with the White House making a formal statement that they would be investigating options to alleviate potential supply chokepoints in order to prevent the chip famine from adversely affecting more people. Some of the top players in the semiconductor industry are lobbying President Biden to get the government to subsidize domestic chip fabrication operations.

Expanding leading-edge semiconductor production is a smart move from a global economy standpoint. If any of TSMC’s leading foundries were to suffer from a catastrophic accident like the 2011 Japan earthquakes, the potential for the world’s economy to be upended is extremely high. It would also be nice to buy an RTX 3080 at its original suggested price, but that’s just some fantasy talk from me.

Contributing Tech Editor

Chris Jarrard likes playing games, crankin' tunes, and looking for fights on obscure online message boards. He understands that breakfast food is the only true food. Don't @ him.

From The Chatty
  • reply
    February 12, 2021 1:30 PM

    Chris Jarrard posted a new article, Unprecedented chip famine threatens business outside tech firms

    • reply
      February 12, 2021 2:20 PM

      Cool overview, thanks for posting.

    • reply
      February 12, 2021 8:20 PM

      Good article, dude! :D

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      February 12, 2021 9:06 PM

      The car prices are no joke. Coworker had someone from a dealership flag him down on the road and offering him 55,000 for a GMC truck he paid 37,000 for a year ago. And if the dealer is offering him that much you can be sure they figure they can sell it for 65 or 70k tomorrow.

      • reply
        February 12, 2021 9:07 PM

        *just to be clear, he was suspicious when a random guy at a stoplight through the offer at him but he went by the dealership and confirmed they wanted it.

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          February 12, 2021 9:08 PM

          goddamn English is failing me.... *threw the offer

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            February 12, 2021 9:08 PM

            but at least I can get on a waiting list for a $300 1050ti

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        February 12, 2021 9:08 PM

        Wow that's nuts.

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          February 12, 2021 9:11 PM

          Yeah. He's considering it but he looked for 6 months before he found want he wanted and has since done some modifications to it. It's a low mileage GMC Denali diesel truck

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            February 12, 2021 9:11 PM

            I must be having a stroke... want=what

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              February 12, 2021 9:13 PM

              Also still waiting for a dealer to make me an offer on my low mileage '95 Escort Wagon LX

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      February 12, 2021 9:21 PM

      I keep telling voodooraze to go on a chip famine

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        February 12, 2021 11:56 PM

        you can pry the chips from his cold dead hand

      • reply
        February 13, 2021 4:44 AM

        I thought you said hip slammin, and just figured you were flirting as per ushe.

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      February 13, 2021 12:05 AM

      Excellent article!

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      February 13, 2021 5:17 AM

      Don't forget about the crypto mining surge also driving up demand for gpus.

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      February 13, 2021 5:27 AM

      Not related to chips, but probably production lines: home gym equipment demand is outstripping supply and causing the same 3rd party scalper situation.
      A friend of mine had been trying to get some adjustable weight for use at home since last MARCH. He's a regular joe, and was simply unable to find any stock anywhere anytime. I ended up finding some equipment using stock tracking websites, but even I found it difficult. It's the same stupid buying game as RTX 30xx, Ryzen and PS5s.

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      February 13, 2021 5:41 AM

      Interesting article !

      Will be interesting to follow when production ever creeps back up.

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      February 13, 2021 5:43 AM

      That was an interesting and informative read. Great stuff.

    • reply
      February 15, 2021 2:42 PM

      All the more reason we need to get chip manufacturing out of just southeast Asia.

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