The tech industry is grappling with a global shortage of chipsets. This is driving up costs, causing backlogs, and delays. OEMs are taking different routes to tackle this situation.

Chipsets are used in cars across the board, from infotainment systems to brakes to parking cameras. Anticipating a massive drop in sales as the first Covid-19 lockdowns hit in early 2020, car manufacturers slowed purchases of their chips. Chipset foundries subsequently scaled back on production.

Booming demand is causing a chipsets shortage

However, demand for cars recovered faster than anticipated in May 2020, which also coincided with a massive surge in demand for consumer technology needed for remote schooling and working. As a result, manufacturers across industries had to compete for chipsets. Added to that are the long lead times for chipset production. The more advanced chips take up to six months to manufacture.

In addition, Chinese chipset foundries like Semiconductor Manufacturing International Corporation (SMIC) have been unable to obtain US components due to geopolitical tensions between the US and China, further worsening the supply.

The shortage of chipsets is a result of booming demand. Discretionary incomes that would’ve been spent on experiences like traveling are now directed towards buying tangible items like electronics, fitness equipment and home upgrades. Manufacturing capacity is focused on higher-end chips that make more money, so the newest budget chips are also in shorter supply.

Good budget products in laptops, tablets and smartphones may become more expensive and difficult to find in the coming year. Gaming PC equipment and game consoles have already become difficult to find and have become more expensive in the past few months. Nvidia recently revived older GPU models to meet demand, since even older graphics cards have seen price spikes and a lack of availability. Manufacturers may rely on stockpiles of older chipsets and release a “flagship” product with legacy premium chipsets and price it lower simply to keep their foot in the game.

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By GlobalData

New product developments could stall

OEMs are taking different routes to tackle this situation. Samsung has said it might not debut a new premium Galaxy Note model this year due to the chip shortage. LG’s decision to exit the smartphone market was also partly caused due to the component shortage.

Chipset foundries are likely to favor bigger companies with greater scale like Apple and Samsung compared with LG, Xiaomi and Lenovo. Apple’s CEO Tim Cook has already warned of product shortages, especially its tablets and laptops which use its own M1 chip, causing a dent in its profits in the coming quarter. But Chinese OEMs like Xiaomi have begun stockpiling inventory of chips since Q4 2020, and other OEMs are following suit.

Manufacturers warn of persistent delays ahead

Foundries like Taiwan Semiconductor Manufacturing Company (TSMC) have warned that the global chip shortage will likely persist until 2022. Nokia is expecting the battle for semiconductors to last until 2023, delaying their 5G network rollout plans.

However, vaccinations and the promise of a return to normalcy across countries should help ease the shortage as consumers scale back on purchases and spend their income on travel and other experiences. In the meantime, the demand and supply tussle will continue into next year.