The global silicon chips shortage will likely begin to ease by the middle of next year, according to Guidehouse Insights senior research analyst Sam Abuelsamid.
Abuelsamid said an exploding demand for chips placed in an ever-increasing array of consumer products is the main driver of the shortage.
"Your televisions, your radios, lights, everybody's using smart lights and smart locks," he said. "In recent weeks, I've even gotten a couple of water bottles that in the cap, it has a battery and it has a little UVC emitter to sterilize the water that's in the bottle."
Abuelsamid said the increase in demand for silicon chips (also called semi conductors) combined with the pandemic to cause a cascade of issues.
"We started off with not having enough chips that were being produced of the right type," he said. "And then in the middle of of last year, there were problems with a lot of the chip packaging factories, many of which are in Thailand, Malaysia, Vietnam. We had a number of COVID outbreaks in those regions that led to factory shutdowns."
And computer chips are rarely interchangeable, he said, and producing them is a surprisingly long process.
"The first step starts with sand," Abuelsamid says of the raw material from which silicone is manufactured. "From that, a factory will produce large silicon ingots, about 8-12 inches in diameter. Then they slice off wafers and another factory will print the circuitry on that, usually using UV radiation. Then from there it goes to another factory where the chips are packaged. And then another factory puts them into the final product."
The process can take at least six months and as long as nine months.
The shortage has impacted the auto industry to a great extent. Abuelsamid said the auto industry has in some cases reconfigured software to work with a different chip than the original design.
But, "it's not like changing a tire," he said. Swapping chips at a minimum requires rewriting code and new testing and validation processes.
He said in the future, auto manufacturers are likely to place control of most electronic functions into one or two centralized computer systems, which will require far fewer chips.
