The pandemic might finally be winding down, global supply chains are yet to fully recover. The situation is especially bad in the semiconductor industry, holding up deliveries of a variety of electronic gadgets and appliances, including embedded PCs.

Why is there still a shortage of chips? How long will this situation last? What can the industry do to prevent such a crisis from occurring in the future? Let’s take a look.

Too Many Eggs in One Basket

The core issue dragging down the supply of computing devices throughout the world is the lack of processors. Semiconductor manufacturing is concentrated in a handful of Asian countries, with facilities in developed countries usually focusing on merely assembling the final products.

The result is an overwhelming reliance on imports for critical semiconductor components such as processors. And while that wasn’t a problem before 2020, the pandemic has taught the perils of resting an entire global supply chain on a single source of production.

Everyone Wants A Slice

Worsening the situation is the unprecedented jump in demand for processors. Apart from the obvious culprits like computers and smartphones, chips are needed by things like automobiles and medical devices as well. That is to say nothing about the rise of smart gadgets, each of which needs to be powered by an advanced processor.

On top of that, demand for these devices has only grown in the pandemic, as offices and educational institutions go virtual, and people take their social lives into the digital sphere. Global supply chains simply weren’t robust enough to handle this level of demand.

Still Locked Down

The virus hasn’t left yet. Parts of China are under lockdown once again, and Taiwan has suffered its worst drought in decades. Chip manufacturing, while proceeding at a furious pace, is still not at the level to be able to quickly clear the huge backlog of orders.

Compounding this slow rate of production are shipping woes, with increased traffic driving up shipping costs and introducing another delaying factor into the mix. It would still take some time for the situation to completely normalize.

Silver Lining?

Even though the state of the global supply chain doesn’t look very good at the present, steps are being taken to address the issue. Major companies like Intel have started setting up fabricators in other countries as well, investing billions of dollars in the US and Europe to be able to meet domestic requirements.

As semiconductor manufacturing is a complex and expensive process, these plants will take time to get up and running. In the short term, no relief can be expected from these efforts, but the diversification of chip production will improve the stability of the industry in the long term.

A Long Road To Recovery

Semiconductor fabricators, or “fabs” as they are usually called, take years to set up. This means that it will take till 2024 for most of these new projects to start contributing.

For now, the supply chain must still rely on Asian exports, which means we are going to see continued delays in shipments even through 2022. Depending on how quickly existing manufacturers can scale up their output, we might be out of the waters by the end of the year.

In view of the persistence of the pandemic and the continued evolution of new strains, it is also possible for the crisis to continue for the next couple of years. Keep in mind that every day of lost production deepens the existing backlog of orders, making it harder for the industry to catch up.

Verdict

Covid 19 has adversely affected markets and industries throughout the globe. Digitization of work and education, already on the rise, has now become the de-facto standard in this new world.

The resultant spike in the demand for computers has depleted stocks of most suppliers, putting unprecedented strain on the global supply chain. While fabricators have stepped up their production and are shipping out millions of processors each day, slow shipping and long backlogs are still preventing a full recovery.

The good news is that such an issue is unlikely to repeat again. Even if another pandemic does bring supply to a halt, new fabs coming up in the US itself will be able to fulfill domestic demand without having to rely on imports.