We’re Out Of Chips

Retirement, Income, Tax & Estate Planning.

We’re Out Of Chips

January 19, 2021 Uncategorized 0

I think the last time we talked about pandemic-related shortages, we were running out of beer cans. Thankfully, as my neighbor can attest, we are no longer running low on beer cans. Or beer.

No, we are now apparently out of chips. Microchips to be exact. We are under a lengthy (and lengthening!) microprocessor shortage. Ford just recently had to furlough an entire plant because they don’t have the microprocessors necessary for the cars’ fancy electronics & safety systems. Volkswagen and other manufacturers across the globe have signaled that their production quotas may shift due to the shortage.

So how do we run out of microprocessors, and how does this tie into the pandemic? Three reasons.

Reason 1: Demand Shifted

Back in March, we had two huge swings in demand. Because people were not driving… anywhere, and were hesitant about the future, car & truck sales went way down. Automakers slowed production, and stopped ordering parts for the new cars they weren’t making. At the same time, we all started to gear up for working remotely. Laptop sales, desktop computer sales, and printer sales all skyrocketed as businesses, regular people, and school districts bought everything they could to equip their employees, themselves, and their students to work remotely.

As production in one sector reduced and production in other sectors exploded, microprocessor manufacturers retooled and started producing more chips for consumer technology.

Reason 2: New Increases On Demand

If you keep up with video games, you may know that this is a year of generational shifts. The two largest manufacturers of video game consoles—Microsoft & Sony—each launched a new generation of consoles in 2020. Microsoft, with the XBox Series X and Sony with the Playstation 5. Both consoles are the first in a new generation of gaming consoles promising higher video resolutions, faster speeds, and more immersive gameplay. To accommodate those advancements, each console is packed with new technology.

Add to that the increased demand of those consoles by customers who normally wouldn’t be interested but now find themselves stuck at home and looking for things to do. This increased demand for video game consoles has placed an increased demand on microprocessor manufacturers.

Reason 3: COVID-19 Weakened Supply

Though a large portion of microprocessor manufacturing takes place in climate-controlled, airflow-controlled, sterile “clean rooms”, COVID-19 is still causing workers to be sick and out of work for weeks at a time. Absent employees reduce manufacturing capabilities, limiting supply in a time of increased demand.

So, what’s going to happen? Automakers have placed their orders and chip manufacturers are doing what they can to retool, but finishing orders and retooling the facilities is a six- to nine-month endeavor. In the short term, you’ll probably see a boost in used car sales as new stock dwindles, and you may even see folks going with a less tech-enhanced car than they originally wanted. It’s doubtful, however, that we’ll see this shortage last long enough that automakers will redesign any of their existing models to be less techie.