“When I realized the shortage in January, it was too late,” Dung, founder, and CEO of a computer hardware startup in Taipei (Taiwan), told Nikkei Asia on the shortage of electronic chips on a global scale.
“Some vendors say I have to wait until October, maybe even longer, for the chip. I only needed to book a month in advance. This means that I will not be able to produce the product for nearly a year, even at the orders of the customer,” Dung said.
Small businesses like Dung’s are the first to suffer from a worldwide shortage of electronic chips. In technology supply chains, they do not have the capabilities and voice like the large firms.
Starting from the end of 2020, the shortage of electronic chips is getting worse. Big companies like Apple or Samsung are also affected, even it has an impact on both the political and diplomatic fields.
On April 12, US President Joe Biden held a meeting on this issue with leaders of leading electronics companies such as Intel, Samsung Electronics, and TSMC (Taiwan Semiconductor Manufacturing Co.), as well as big car manufacturers like Ford or General Motors.
Loopholes in the chip supply chain became a thorny problem for the Biden administration when car corporations were affected. The US, Japan, and Germany, the world’s top three automobile manufacturers, have asked strong electronic chip economies such as South Korea or Taiwan to give priority to manufacturing chips for cars. This can affect smartphones, computers, and many other product manufacturers.
The US, Japan, and Germany worry that car corporations will have to reduce production or even stop production due to a lack of chips. This will affect workers, as well as slow down the economic recovery after the COVID-19 epidemic.
The aftermath of the turmoil in the technology supply chain led to a fierce supply race. Businesses are not afraid to use all means to have an advantage over their competitors.
“We accept to pay a higher price and ask the supplier not to sell chips to small companies. I’m sure competitors are doing the same,” a leader of a computer manufacturing company told Nikkei Asia. “If we don’t have enough chips and other parts, I don’t want competitors to have them. If I’m affected, I have to pull the opponents down.”
What is the reason?
Although the surge in demand in the auto industry has exacerbated the supply shortfall, the cause of the global chip shortage is much more complicated.
In early 2020, the COVID-19 epidemic caused China to partially blockade, disrupting the technology supply chain. As production resumed, companies scrambled to order more products than needed to avoid future shortages.
The pandemic has also increased the demand for chips in many sectors. As the world shifted to remote work, the demand for electronic devices increased.
The development of 5G technology also contributed to this situation. A typical 5G phone needs 3 antennas, while a 4G phone needs only one. Therefore, the number of electronic chips that 5G phones need is also more.
Before the pandemic, the technology supply chain was also affected by the trade war between the US and China. When the administration of former President Donald Trump banned Huawei from accessing essential technology from the US, Chinese companies tried to stockpile equipment from the US, leading to an increase in demand for electronic chips, as well as other important technological equipment.
On this occasion, some competitors stepped up purchasing chips in hopes of gaining market share from Huawei. This, in turn, made the situation worse.
Not only the small companies, but the big smartphone giants have also started to suffer. Samsung warned of a “tough” situation from April to June, while Apple had to reduce the production of MacBooks and iPads.
“In some areas of technology, demand is far beyond supply. We are facing the challenge of expanding production. This could take three to four years, and cost billions of dollars,” predicted Peter Hanbury, a technology supply chain expert.
Some experts are not so optimistic. According to them, over-ordering, hoarding efforts, and the desire to put pressure on tech companies’ competitors can cause a “bubble of demand.”
Anyway, the harm of the global chip shortage is undeniable.
“The shortage can cause a lot of damage, especially for small and medium businesses or startups,” said Wallace Gou, President, and CEO of Silicon Motion, one of the leader manufacturers of control chips, sharing with Nikkei Asia.
“Many businesses will have to leave the market if this situation is not overcome,” he concluded.
As for Dung – the founder of the hardware company, time is running out. “We don’t have the resources and the purchasing power of big businesses who can create big purchasing campaigns and put things in their warehouses,” he said. “Now we can only work overnight to change designs, find more available spare parts.”
“And fight to survive,” Dung said.