The Global Chip Shortage - Digits to Dollars

The current shortage is driven by two things: Covid and manufacturing is hard. Last year, factories in China started shutting down early in the year. By the time they started re-opening later in the year, factories everywhere else had shut down, or at least drastically scaled back. So many Chinese factories did not scale production up in a hurry. The result was reduced output everywhere. Then early this year it became clear that pandemic was under control in China and vaccines were coming soon everywhere, and that demand for many electronic devices was stronger than ever. Companies across the supply chain suddenly had to race to catch up, but often found their suppliers were not back to producing at full scale. This caused wrinkles to spread across the industry. Finally, it appears now that shipping has become a bottleneck with air freight prices sky high (pun intended) and US ports still dealing with scaled back working conditions. You could probably also throw in the US-China Trade War, but let’s not go down that particular rabbit hole now, just chalk it up to further complicating the situation.

The best example of this, and one we commonly hear, is the proverbial $2 electric motor which prevents completion of a $50,000 car. Now multiply this by 10,000 companies all hindered in their ability to ship because of some shortage from someone else’s factory.