What the Global Shortage of Computer Chips Means for You

Phone, car, TV and game console manufacturers have all had to scale back production, and in 2021, they all will cost more.
Marcia Wendorf

This year, are you planning on buying a new cellphone or TV, perhaps a new game console or a new car? If any of these are on your "to buy" list, you might be in for a shock. All these devices contain "brains" called semiconductor chips made out of silicon, and right now, device manufacturers are struggling to source these chips.

The largest semiconductor manufacturers in the world are: Intel Corp., Samsung, Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), SK Hynix, Micron Technology Inc., Qualcomm, Broadcom Inc., and Nvidia.

The chip shortage first became apparent a year ago, when many chip-making factories, called foundries, closed due to the COVID-19 virus. At the same time, the virus was changing the habits of people worldwide.

Many of us invested in new home computers for ourselves or for our children who were learning from home. Unable to go out to movie theaters or restaurants, many of us opted to buy new televisions or game consoles, and with working and learning from home came the need to stay connected. This led to increased sales of phones, especially new 5G-enabled phones.

The shortage's impact on phones

The world's largest buyer of semiconductor chips is Apple Inc., followed in second place by Samsung. But, Samsung is also the world's second-largest producer of semiconductor chips, and you might think that this would make Samsung immune to the current crisis, but you'd be wrong.

Samsung Galaxy Note 10
Samsung Galaxy Note 10 Source: nemanjazotovic/iStockPhoto

Last week, Samsung told the BBC that it might have to skip the launch of its next Galaxy Note smartphone. Samsung's mobile chief and co-CEO, Koh Dong-jin, told a shareholder meeting that, "there's a serious imbalance in supply and demand of chips in the IT sector globally." To make matters even worse, last month's terrible weather in Texas caused Samsung to temporarily close its Austin chip manufacturing facility.

Last year, according to Tech Radar, Apple was forced to delay the launch of its iPhone 12 line of phones by two months due to "supply restrictions caused by the impact of the coronavirus."

The shortage's impact on cars

Dozens of semiconductors are used throughout new vehicles in areas such as infotainment systems, Bluetooth connectivity, steering, braking, engine management, and airbag control.

Ford F-150
Ford F-150 Source: shaunl/iStockPhoto

In February 2021, the semiconductor shortage forced car manufacturer Ford to cut production at two plants that manufacture its bestselling F-150 pickup truck. The company's chief financial officer, John Lawler, told Splash Broadcasting that, "Right now, estimates from suppliers could suggest losing 10 percent to 20 percent of our planned first-quarter production."

On March 19, 2021, automaker Nissan was forced to halt production at three of its North American factories due to the shortage of semiconductors. According to Seeking Alpha, the suspension at Nissan's Smyrna, Tennessee plant will affect the production of the Murano crossover and Rogue, Maxima, and Leaf vehicles.

The halt at Nissan's Canton, Mississippi plant will affect the production of the Altima sedan and NV vans, while the stoppage at the company's Aguascalientes, Mexico plant will affect production of the Versa, March sedans, and Kicks subcompact crossovers.

Things are no better at General Motors, with the company telling CNBC that it was shutting down production at its car and crossover plants in Fairfax, Kansas, San Luis Potosi, Mexico, Ingersoll, Ontario Canada, and Sao Paulo, Brazil. These shutdowns will allow GM to divert all their remaining chips to factories that produce its full-size pickups and SUVs.

GM's CFO, Paul Jacobson, told CNBC that the chip shortage would cost the company between $1.5 billion and $2.5 billion in 2021. Ford executives cited similar lossesIE has previously reported that Toyota has reduced production of its Tundra pickup at its factory in Texas, and that Fiat Chrysler has temporarily closed factories in Ontario, Canada, and Toluca, Mexico.

We also reported that last month, VW announced it was reducing production at its China, North America, and European factories.

The shortage's impact on entertainment

If you've found it hard to find on a Sony PlayStation 5 for sale, you're not alone. Since its launch in November 2020, production of the PS5 has been constrained due to the chip shortage.

Sony PS5
Sony PS5 Source: Girts Ragelis/iStockPhoto

In February 2021, the president and chief executive of Sony Interactive Entertainment Jim Ryan told the Financial Times that he expected the PS5 supply limitations to "ease incrementally throughout 2021," but he refused to discuss whether there would be a shortage of the units come the 2021 holiday sales period.

The semiconductor shortage has also affected Microsoft’s ability to produce its popular Xbox Series X/S consoles. Bloomberg recently reported that the high-performance specialty CPUs used by Sony, Microsoft, and Nintendo to build their game consoles may be in short supply during most of 2021.

The White House steps in

On February 24, 2021, President Joe Biden signed an executive order that began a 100-day review of supply chains across four key industries: semiconductors, critical minerals, pharmaceuticals, and large capacity-batteries for electric vehicles.

Office of the President
Office of the President Source: Bet_Noire/iStockPhoto

President Biden also sought $37 billion in funding to beef up semiconductor manufacturing in the U.S. after meeting with a bipartisan group of lawmakers. Measures aimed at boosting chip manufacturing in the U.S. were included in this year’s National Defense Authorization Act.

It's likely that the chip shortage will continue for some time since it can take up to two years to build and get a chip manufacturing facility up and running. That means that the current trend of semiconductor price increases will only continue.