What’s Causing the Global Hardware Supply Chain Issue?

shortage of electronic chips

Only a few years ago, if you needed new hardware for your IT environment, you could pick it up without a second thought. Unfortunately, hardware acquisition has become much more difficult in recent times. You may have also noticed that prices have gone up as well. It’s not like manufacturers have stopped making PCs and other hardware, so why is it so hard to get the equipment you need now?

What’s Causing the Hardware Supply Chain Problem?

The hardware supply chain shortage is a relatively recent development that has no single answer. There are multiple factors at play that have contributed to the problem. Some of these factors include increased demand for technology during the pandemic, COVID-19 related production disruptions, and even shipping blockages (e.g. Suez Canal incident). But arguably the biggest contributor has been the lack of computer components.

By computer components, we’re not necessarily talking about central processing units (CPUs) or graphics processing units (GPUs). We’re actually talking about the simple microchip. Also commonly called a computer chip, these components are used in a large number of products like phones, tablets, refrigerators, cars, and thermostats.

At the start of the pandemic, chip manufacturers slowed down or even stopped their operations as orders declined. When the business world began to bounce back, orders for chips surged. The steep incline in demand made it difficult for chip manufacturers to keep up with orders. Consequently, this has impacted hardware manufacturers, resulting in them being unable to fill their own orders.

Is There a Reason for the Chip Shortage?

You now know that the lack of chip supply is one of the biggest contributors to the hardware supply chain issue, but what led to it? The answer is similar to why there’s a hardware supply chain problem, there are a variety of factors at play. However, the difference is the lack of manufacturers.

Did you know the United States only produces about 12% of all computer chips in the world? Our country heavily relies on outsourcing for its computer chip needs. Even if the government wanted these US-based factories to ramp up production, they wouldn’t be able to because of facility closures early during the pandemic.

A vast majority of the world’s chips are produced by two companies—Samsung and TSMC. When the pandemic hit, the ports Samsung and TSMC typically use for shipping were shut down. Containers full of chips sat idle, not reaching their destinations. The situation was exacerbated by a buildup of goods and labor shortages as well.

Another untimely problem was extreme weather. Taiwan, where TSMC is headquartered, experienced its worst drought in 50 years. A crucial part of chip manufacturing involves water, and the water shortage greatly hurt TSMC’s output. Additionally, a fire at Renesas Electronics (a Japanese chip maker) destroyed one of the company’s buildings in March of 2021.

Can’t the US Manufacture More Chips?

As you’ve been reading this blog, you’ve probably been wondering why the US doesn’t manufacture more computer chips? The short answer is these chips are difficult to make. It’s also cheaper for American companies to outsource the production to businesses in other countries.

It wasn’t always like this, though. The microchip landscape looked much different 30 years ago. During this time, the US was producing close to 37% of the world’s chip supply. However, the status quo changed after companies realized it would be cheaper to build factories in other countries. The countries that were chosen offered more attractive financial incentives to construct factories and had less regulation to deal with.

Currently, almost 75% of chip production comes from Asia. In the next few years, China is expected to become the world leader of chip production. However, recent developments could encourage more companies to build chip facilities in the U.S. in the near future.

What’s in Store for the Future?

Is the hardware supply chain problem here to stay or is there light at the end of the tunnel? While there are no quick fixes that can solve this predicament, the shortage won’t last forever. The shortage is expected to last through 2022 to 2023, but things may change after that.

One promising sign is there are plans to build new Intel and Texas Instruments foundries in the US in the near future. These factories would add to the 29 other factories built around the world this year and last. It’s also believed that although the chip shortage is going to linger for a while, the shortage should at least begin to ease in the second half of 2022, according to Counterpoint.

What Can You Do Until the Problem Is Solved?

Don’t have time to wait for the hardware supply chain problem to solve itself? There is something you can do to improve your chances of getting the equipment you need. All you have to do is partner with a computer parts supplier.

Through our IT procurement services, The Millennium Group can help you get the technology your business requires. As your provider, we make sure to act quickly when hardware becomes available. We can also guide you through the process of sourcing the hardware so there is no risk on your end. Our team even provides advice on what hardware would work best for your IT environment.

chip shortage close up of a chip

Get the Hardware You Need

The Millennium Group is a leading managed services provider that cares about your success. Leveraging our years of experience, we can help you work around hardware supply chain issues so you get the technology you need. We also offer a comprehensive list of other IT services, from server virtualization to cloud migration, to ensure your business is covered from every angle.

Contact us today to learn more.