Supply and demand: A closer examination of the global chip shortage - KSAT San Antonio

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Have you recently gone to a store to purchase an updated phone model? Or, maybe you were hoping to get your hands on the latest gaming systems and shelves were empty?

Did you recently move to a new home and that refrigerator or washer and dryer combo you were hoping to install are on backorder?

Maybe a new car you want isn’t on the lot?

Well, all these issues have a common culprit — the global chip shortage.

Semiconductor chips are tiny, integral pieces to nearly every kind of modern technological device.

Essentially, they make devices like your phones, smart watches and TVs work.

However, it’s not a one-size-fits-all. All the different types of technology we use every day are made up of different parts and they each have unique circuit boards to which these chips belong.

As new technology is developed and more and more types of devices are introduced to the market, we need trillions of these chips to keep up with demand.

In fact, more than a trillion chips are made each year to cover the roughly hundreds of chips used by any individual, but the process of making them isn’t exactly simple.

“The whole thing is definitely automated and very highly sophisticated and there are thousands of steps,” said Anandi Dutta, assistant professor of practice with the Department of Computer Science at the University of Texas at San Antonio.

Built on what’s known as a silicon wafer, Dutta explains the chips are so small they cannot be made by hand and require advance technology themselves for their own creation.

After assembly and testing is complete, they’re ready for distribution, but that process came to a screeching halt as coronavirus began to spread in 2020.

“When COVID-19 happened, at that point it was thought there won’t be much demand for the chips,” said Dutta. “But what happened, we are working from home and schools and everything, so we need lots of devices and people bought lots of devices, workstations, gaming devices, all kinds. So, the opposite happened and there’s that supply and demand issue.”

On top of that growing demand for electronics, not helping matters is the current fractured geopolitical landscape we find ourselves in.

Since the beginning of the shortage, tensions have only grown between some of the the world’s biggest producers and consumer of semiconductors.

“Now you see that basically almost everything we are using these days, they come from all around the world. The final product may still be made in the United States, but there are parts, there are suppliers of the parts, which also means there are suppliers of suppliers and they may be in China, India, Mexico, Europe, Australia, you name it,” said Mark Leung, Ph.D., department chair and associate professor of management science and statistics at UTSA.

According to Leung, major corporations from around the world once worked together on chip production, focusing on cheap labor to maximize profit.

That’s why we often see many of our electronic components are made overseas, not by a single country but by multiple countries.

It’s a process called “globalization,” but that process has been interrupted by trade wars (primarily between the U.S. and China) and political tensions, which were significantly heightened amid the coronavirus pandemic.

“This is exactly what we call in the movies, the ‘Clash of the Titans.’ They will have to do all kinds of things to protect their own interest,” said Leung, who explains more countries have drastically reduced outflow to foreign consumers and have instead shifted to maintaining their own stockpiles of semiconductor chips, leading to the dwindling supply chain.

The struggle, however, doesn’t end there.

Natural disasters happening amid the pandemic have also greatly contributed to the global chip shortage.

A drought in Taiwan, a plant fire in Japan and even February’s power grid failure in Texas directly affected production of semiconductors.

The Texas grid failure alone forced the shutdown of multiple plants in Austin.

“Over 70% of the chips in the world on the supply side have been disrupted. What can you do about it? Nothing you can do because these companies hold the technology,” said Leung.

From huge corporations to local mom and pop shops, the chip shortage is affecting many aspects of everyday business.

Steve Flannery is the owner of Steve’s Computer Repair, off of I-35 on San Antonio’s Northeast Side.

Flannery said he’s seen firsthand the rise in demand amid the low supply of chips.

“Since COVID, we noticed a big increase of people coming in with older laptops that they want to repair because there’s a shortage on new laptops,” said Flannery, who adds he’s also having to pay a higher price for parts, which means more money out of customers’ pockets.

“A typical job may cost $200 to repair your computer. Now, it costs $230 to repair your computer,” Flanner explained.

In addition, Flannery said customers will have to wait much longer for their repairs.

“It took us about six months to get our big shipment of parts in, so it’s affecting our part stream. Really, we can’t repair unless we have the proper parts.”

Among the hardest hit during this chip shortage is the auto industry, as any single vehicle uses thousands of semiconductor chips for its multiple electronic interfaces.

According to a 2019 analysis from Deloitte, those electronics make up for more than 40% of a vehicle’s total cost.

“Right now, it’s going to be tough for new car franchise dealerships or even just used car dealerships just to obtain vehicles at a reasonable price that they can turn around and resell to consumers,” said Scot Hall, executive vice president of operations at Swapalease.com.

Hall said he’s been in the car business for nearly 25 years and doesn’t recall ever seeing a supply chain issue like this.

With less newer cars on the market because of the shortage, Hall said used cars find more worth and in turn, higher demand.

The higher demand means there are also less used cars for buyers to choose from, which has many searching for an alternative to traditional car buying.

The website Hall works for, Swapalease.com, is an online marketplace for auto lease transfers which, as its name states, allows those in search of a new vehicle to trade their auto lease with someone else.

“We’ve had just an absolute surge in buyer interest on our website, which kind of directly proves to me that we’re seeing people out there, you know, looking under different rocks and look for new ways to obtain a vehicle,” said Hall.

The future remains uncertain as to when we can say production of semiconductor chips has returned to normal, and it’s becoming increasingly likely that version of normal won’t look the same as it did before.

No longer are countries looking to the globalization process as it pertains to semiconductor chips production.

In fact, many countries, including the U.S., are now striving for a self-reliant production model.

It may sound like an easy solution, but it’s more of an uphill battle requiring new infrastructure and a healthy supply of capital, something President Joe Biden is pushing for with his currently stalled infrastructure plan.

“This is infrastructure,” Biden proclaimed, holding up a silicon wafer while speaking during a virtual summit on the global chip shortage at The White House in April.

The investment in chip production in the U.S. is indeed a long-term solution to the chip shortage, but Mark Leung said it does come with short-term costs.

“So it’s a question of are you willing to pay a higher price? In order to build up your infrastructure again, to protect against this kind of disruption or risk,” asked Leung.

Until the problem is solved, there’s not much consumers can do but wait.

Whether you’re looking for a new car or hoping to secure the next big gaming console this holiday season, just know it may not be as easy or affordable as you might think.

More on KSAT:

KSAT Explains: The ‘total breakdown’ of the Texas power grid

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