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CHIP DROP: Automakers are Grappling with Microchip Shortages

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CHIP DROP: Automakers are Grappling with Microchip Shortages

Chip Drop – The semiconductor industry calls this it’s chicken and egg problem. And it creates a multi-million dollar headache for automakers and other industries that rely heavily on microchip technology. Essentially, automakers are short of the chips used to make sophisticate modern cars, but at the same time, the companies that make these chips are short of the machines that are using to make them. This global scarcity of semiconductor chips fuels an all-out attack on supply chains, and experts say the drought could persist for at least another year.

As a result, a shortage of microchips is forcing major automakers to restrict production as several U.S. Senators desperately lobby for help to boost production. Some of Taiwan’s largest auto parts manufacturers have pledged to increase the production of much-needed auto parts. Still, the problem goes deeper and stems from a long-standing imbalance in the industry. The growing demand is underpinne by declining supply due to broad assessments of when chipmakers can address shortages and deliver parts that consumer electronics companies need.

Estimation Of Chip Drop

Estimates vary significantly due to two competing manufacturing factors:

The time it takes to make a microchip (three months) and the much longer time it takes to manufacture the hardware that makes that chip. The global supply shortage in mechanical engineering for the manufacture of microchips is nothing new – a small group of machine builders has experienced a need for the past twenty years. The microchip industry is responding to extremely volatile demand behavior. And it is not uncommon for trends to rise 60% one month and fall 20% the next. However, delivery bottlenecks were an additional factor, where the value of the orders was greater than the number of items invoiced. This means that instructions are piling up faster than they could be shipping.

Then, in 2018, semiconductor equipment sales began to decline due to changes in the structure of end-user demand. Trends shifted towards artificial intelligence and 5G, leading to a decline in the server and personal computer market. And all this happened much faster than hardware manufacturers expected. Suddenly, microchip makers focused on new technologies and reduced deployment options. And making the already complex demand-metering business even more challenging due to rapid advances in microchip development. The more traditional pace of development of the semiconductor manufacturing equipment industry meant that it could not keep up with the times. Its machine products quickly became obsolete as technology advanced.

Semiconductor of Chip Drop

All of this makes production and inventory management exceptionally challenging. Likewise, capital spending rises and falls with the percentage of sales revenue invested in research and development. While semiconductor manufacturing equipment turnover increase upto 17% in 2020. And expecting new equipment sales are projecting to rise another 23%, this does not mean that chipmakers will receive their equipment on time. This creates a state of simple imbalance that is spreading to other industries. Electronics giant Samsung fears that a similar shortage could start taking its toll on smartphones. Thus, disrupting orders for the memory chips used in those products.


Obviously, while cars are essential to the country’s economic health, mobile devices are also need to rebuild the economy after the coronavirus pandemic. So the warnings are taken very seriously as semiconductor foundries cannot meet the demand already running at total capacity. Capacity. This leads to faster release of products to meet demand, while redistribution can focus on one industry. Rather than another, exacerbating pressures. And in countries hardest hit by the virus, cars may be seen as a more essential means of rebuild their economies. In other countries, the demand for mobile chips is growing. It remains to be seen if the builders of microchip equipment can keep up.

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