What’s behind the global chip shortage?

The global chip shortage has had a huge impact on businesses and consumers – and been almost constantly in the headlines over the past year or so. It has been difficult to get away from the effect this has had, whether that’s on the price of technology or the availability of products. So, it’s been headline news for some time but what has been behind the global chip shortage and what are the prospects going forward?

What caused the global chip shortage?

• The pandemic caused a shortage of supply. There is no doubt that the impact of the global pandemic has been severe, not just in terms of the global chip shortage but when it comes to all supply chains. Due to the pandemic, many – if not all – chip manufacturers closed their foundries. The consequence of this was a much smaller number of chips being produced meaning a significantly smaller available supply.
• And also an increase in demand. Chips are used in many different types of tech and, in particular, the devices and equipment that we need for home working. Given the huge spike in remote working that was the result of lockdowns being imposed on a global level, the shortage of chips for technology happened at the same time as a spike in demand for that technology as more and more businesses switched to staff working from home.
• But the pandemic was not the only factor. The chips that power personal and business tech, such as laptops and phones, are the same as those that are also required for some of the most cutting edge innovation taking place in the world today. So, for example, you would find the same chip in your phone as in a self-driving car or a smart fridge. Even before taking into account the pressure that the pandemic put on supply chains there was already a sharp increase in demand thanks to the proliferation of new tech happening all over the world.

What is the outlook for the global chip shortage?

Back in 2021 the predictions were that the shortage would continue for another couple of years at least. This was the forecast from industry leaders, such as the IBM president. So, even though the pandemic has eased somewhat and many economies have taken steps back towards recovery, it doesn’t look like the global chip shortage is going to come to an end any time soon. The console market is often seen as one of the best indicators for chips, as it is one of the most chip-sensitive industries and one of the first to be affected. Currently, the consensus is that buying a console like the XBox Series X isn’t going to get any easier until later this year so we are not yet on the road back to normality.

The global chip shortage has had a huge impact on many sectors, from automotive to IT and gaming. Although conditions have improved significantly we are still some months away from any kind of return to normal for any of the affected industries.