The chips are down…

For quite a while now, the provision of the microchips that go into various electronic and technological products has been affected by a number of factors. i.e. a decline in the availability of minerals needed in their manufacture; Covid taking down entire factory workforces; and even problems exporting the chips once they’re created.

There are few products in our modern world that don’t require a microchip. From washing machines to our cars, from our phones to our TVs, everything relies on pioneers Jack Kilby and Robert Noyce’s 1959 invention.

The most prolific manufacturer of the microchip (which can also be referred to as a semiconductor or integrated circuit) is China. In theory, it wouldn’t be difficult for China to hold the rest of the world to ransom, such is their current monopoly in terms of microchip production and our reliance on them.

In recent years, the spread of Covid has impacted the manufacture and supply of chips for exportation, with the knock-on effect being a scarcity of many products that use them—such as new cars (the average price of which has increased by 16% in less than two years) and household white goods.

Such is the hold China has on the chip market that America has fast tracked investment into new factories and research, in order to increase production of the microchip within their own geographical boundaries, under its 2022 ‘CHIPS Act’. Other countries, perhaps a little nervous about what could happen if they don’t, have followed suit, in a bid to reduce their reliance on China’s chips.

Over summer 2022, chip shortages meant some customers were waiting 40 to 50 weeks for their orders, which, understandably, had a huge impact on numerous companies’ production rates and turnover. Because the raw materials that make up microchips have not been as abundant, their price has shot up. It’s amazing to think just how much impact these tiny components of our everyday items has on our lives.

Individually, we may be able to go without a new smartphone or tumble dryer, but our public systems and machines also use microchips, e.g. traffic lights, air traffic control, ambulances, hospital incubators and ventilators, etc…what would happen if there were suddenly no microchips available at all? The modern world would be sent spinning back to the Dark Ages.

Despite this damning thought, experts believe the microchip crisis will stabilise next year, as the Covid virus weakens and wreaks less destruction on Chinese (and other) workforces; as other countries look to produce their own chips, using raw materials from their own land; as exportation restrictions are relaxed; and as other technologies are used in place of the humble chip wherever possible (for instance, a manufacturer of radio technology has managed to cannibalise its product, so that it doesn’t need a microchip at all).

The cost-of-living crisis will play its own small part in this scenario, too, as it will no doubt affect the amount of disposable income people in the Western world have to spend. Many people will be making do with their current technological/electronic items rather than blindly paying out for a newer model. Less demand will free up more supply. In terms of the car market, smart cars and electric models require a greater amount of microchips than older vehicles; however, given that the infrastructure for charging electric cars is lagging well behind production, and also that the safety of smart cars has yet to be accepted, any increased demand for chips these products may demand is likely to be a few years away.

The amount of electronic equipment and technology we use at Novus means that the chip crisis could well affect us if it were to continue. It’s likely many other businesses would also be in the same position.