written by
Zack Calloway

The Chip Shortage Explained: How It Happened and What It Means for Your Business

Strategy Tech Tips Video technology trends 1 min read

Have you heard about the global chip shortage? It’s a serious problem, affecting everything from cars to iPhones to the equipment you need to keep your business running smoothly. But unless you follow tech news on your own time, you may not have heard about this problem or know what the ramifications might be at work.

Here’s what you need to know about the global chip shortage, how we got here, and what your business needs to do to stay equipped.

The Chip Shortage: What Is It?

The global chip shortage is a supply chain problem caused by a lack of sufficient supply of the silicon microchips that power today’s electronics. These chips go by a variety of names: semiconductors, semiconductor chips, computer chips, and so on. And right now, manufacturers need more of these chips than the chipmakers can make.

These chips are in nearly everything with a computing component, from household appliances to cars to consumer electronics. As a rule of thumb, if it has a screen, it has one or more chips inside.

The auto industry was one of the first to hit a chip shortage. Ever since the summer of 2020, new vehicles have been in short supply— not because of assembly line shutdowns, but because the automakers can’t source the $10 chips for the computer and infotainment modules that the vehicles can’t run without.

These chips exist at a variety of performance and price levels, too. The high-performance chips in the latest computers and smartphones are far more complex — and more expensive — than the chips that power a smart toaster or even a smart TV. Various types of chips are faring better or worse, but the shortage is affecting most categories at this point.

How Did This Happen?

So, how did we get here? Well, it’s complicated, but In a word, COVID. Most of the global manufacturing capacity for semiconductors is located in Asia, which was the first region to shut down at the beginning of the COVID-19 pandemic. Semiconductor factories sat offline for months, but demand for their chips didn’t lag all that much.

Semiconductors are incredibly complex, and they take a long time to make — in the neighborhood of three months, start to finish. On top of that, building a new plant for manufacturing them is not simple. Some firms have already begun building in Arizona, but their facilities won’t even come online until 2022 at the earliest.

COVID also created high levels of demand for certain products that — you guessed it — needed semiconductors. Manufacturers shifted to fill those orders, of course.

Then, when other product manufacturers started ordering semiconductors again after the initial wave of COVID lockdowns, there weren’t enough chips to go around. And for any firm that canceled orders, they found themselves at the back of the line when it was time to order again.

There wasn’t (and still isn’t) enough surge capacity to create more chips to meet the demand. And no one can build new factories fast enough to fix the problem quickly. The factories are just too complicated, and it’s going to take time.

What the Chip Shortage Means for Your Business

If you’re just hearing about the chip shortage for the first time, this all might sound a little scary. What does all this mean for your business?

Supply chain bottlenecks caused by the chip shortage may well affect your industry and your business, and prices for electronics and equipment are trending slightly upward.

But there’s good news here, too. Most businesses that have weathered the pandemic this far should have no issues maintaining normal business operations — so long as they plan ahead.

Sourcing new computers and other electronic equipment is still possible. You just might need more lead time than you would otherwise. If you think you might need any new hardware in the next six months, consider placing your order as soon as you can. That way, if you encounter any delays or supply chain issues, your vendor still has plenty of time to deliver.

If you’re not sure whether certain hardware will last, now is the time to proactively order a replacement. Last-minute replacements — especially for specialized hardware — could be a real challenge during this shortage.

Not sure what needs replacing (or when)? We can help with that. Reach out now to schedule a strategic review of your current hardware. Blue Ridge Tech can help you craft a plan for any upgrades coming due in the coming months.

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