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The global computer chip shortage explained: What it means for you and your tech

With component supply shortages continuing, smartphones could soon become as hard to buy as consoles and graphics cards.
November 5, 2021

If you’ve tried to buy the latest generation of AMD or Nvidia graphics cards, AMD Ryzen processors, or game consoles like the PS5 or Xbox Series X/S, you might have noticed that there’s a bit of a stock crisis hitting some sectors of the consumer tech industry right now.

The main culprit — on top of the impact of the ongoing COVID-19 pandemic — is a global chip shortage that’s severely limiting the availability of the latest technological products. The shortage of processing components is also having knock-on effects for other markets, including automotive, cryptocurrency, and now smartphones.

RelevantAll of Qualcomm’s Snapdragon SoCs explained

Smartphones seemed to dodge the crunch in late 2020 and early 2021, but they’re starting to get hit by the shortage now. Back in March 2021, Xiaomi president Wang Xiang implied that a chip shortage is driving up SoC prices and that this may result in more expensive smartphones this year. In the same month, Samsung CEO DJ Koh warned of “a serious imbalance in supply and demand of chips.”

Fortunately, we are yet to see the same dreaded “out of stock” messages for smartphones that currently plague computer parts and gaming stores around the world. But the prospect that chip shortages will affect major handset releases going forward, is quickly becoming a reality.

The great global computer chip shortage: What you need to know

The current chip shortage is the result of a perfect storm of huge demand and limited supply. The unprecedented desire for at-home entertainment in the wake of the COVID-19 pandemic has seen stock issues for the latest games consoles and graphics cards which have lasted far beyond the usual launch window rush. The necessary shift to working from home has also seen laptop growth reach decade highs. At the same time, the boom in the value of cryptocurrencies has reignited mining profitability, piling on demand for various high-end processing components.

The chip shortage is the result of a perfect storm of huge demand and limited supply.

While consumers may be noticing the chip shortage most acutely when it comes to gadgets, the origins of the current shortage can be traced back to the automotive industry. In the early stages of the pandemic, automakers drastically cut back demand for processors in anticipation of falling sales. This turned out to be premature. Sales rebounded quickly, and the automotive market rushed to buy back cutting-edge manufacturing capacity. Although most of this had already been given away to other processor sectors experiencing their own demand. The end result is two huge markets both in need of more chips, but with production capacity already maxed out.

A number of smaller factors have also contributed to both the supply and demand ends of the shortage. February’s power outages from cold weather brought Samsung’s Semiconductor manufacturing operations in Austin Texas to a halt until mid-March. Taiwan is also experiencing a severe drought which threatens the major semiconductor manufacturing operations in the country. The US-China trade war has also seen Chinese companies, such as Huawei, stockpile chipsets and other components throughout 2020 and into 2021.

Qualcomm Snapdragon 888 chip by phone

There are only so many chips to go round

It’s important to note that Microsoft, Sony, Nvidia, AMD, Apple, Qualcomm, and others don’t manufacture their own processors. The bulk of the world’s cutting-edge semiconductors are manufactured by Samsung and TSMC. Although output from other manufacturing operations around the world, such as NXP and Texas Instruments, is also important and in equally short supply. This is particularly true when it comes to automotive components.

The bulk of industry demand for all sorts of chipsets falls on a handful of foundries.

Chipsets for high-end computing markets are mostly vying for 10nm and 7nm production from Samsung and TSMC. Smartphone chipsets use these manufacturing fabs too. Flagship-tier mobile chips are competing with automotive orders on 5nm manufacturing lines from TSMC and to a lesser extent from Samsung.

Why not add more capacity?

Intel is an outlier. It manufactures its own processors and isn’t experiencing a shortage like competing foundries. The company aims to capitalize on the current shortage by expanding its operations in Arizona and opening up its foundries to take orders from third parties once more. Including processors built on rival Arm and RISC-V architectures. Although this will take months to trickle through as the industry familiarizes itself with and evaluates Intel’s tools and processes.

Also read: What’s the best add-in GPU for you, AMD or Nvidia?

So, why not increase production to meet demand?

Unfortunately, the situation is not that simple. Fabs are complex capital and time-intensive operations that require expensive expertise and intellectual property to construct. Extending existing production lines can take months, building new ones from the ground up can take years and cost tens of billions of dollars. As such, the Biden administration’s review into US manufacturing can’t hope to help alleviate the shortage in the short or medium term.

What does the computer chip shortage mean for products?

ps5 logo review
Oliver Cragg / Android Authority

We’ve already seen the chip shortage materialize in delays, shortages, and price increases for products across various industries.

Automakers felt the brunt first, with insufficient chip supplies to finish building vehicles. Research firm IHS Markit (via CNBC) anticipates 672,000 fewer vehicles rolling off production lines in Q1 2021. Major brands including GM, Ford, and Tesla are all affected and have had less stock available for purchase in 2021. Analyst estimate the loss to the automotive market is around $60 billion in 2021. Toyota is weathering the storm much better, thanks to a fourth-month chip stockpile.

In the gaming markets, the latest PlayStation and Xbox consoles have been consistently in and out of stock as supply trickles its way into the market, although this has gradually improved. The situation in the PC sphere is even worse, with the latest graphics cards and AMD CPUs virtually unobtainable. There’s little sign of this improving until even 2022. Reputable retailers are listing PC products well above the Manufacturer’s Suggested Retail Price (MSRP), due to a combination of higher component costs, shortages, and the end to tariff exceptions in the US.

Products are selling well above MSRP due to a combination of component costs, scalping, and the end to tariff exceptions in the US.

Compounding the woes is the scalping scourge. Games consoles and graphics cards have been the worst hit by the use of bots to snatch up limited stock which is resold with a major markup. Sony’s PlayStation 5 continues to sell on eBay for nearly double its MSRP, and graphics cards like Nvidia’s RTX 3070 can be found for three times the list price or more. Fortunately, we haven’t seen the same profiteering for other gadgets, yet, but it’s a distinct possibility if the shortage tightens.

Renewed profitability in cryptocurrencies is a major contributor to the demand for graphics cards and subsequent scalping. This has seen Nvidia announce dedicated mining GPUs and slashing Etherum mining performance on its new RTX 3060 series. However, the growing cost and limited availability of hardware is pushing smaller miners out of the market, consolidating the rewards in larger-scale operations such as those in China. The chip shortage even has repercussions for the “democracy” of cryptocurrency mining.

What about smartphones?

OnePlus 9 Pro vs Samsung Galaxy S21 Ultra 2
Luke Pollack / Android Authority

It’s tougher to gauge the chip shortage’s impact on the handset market than it is with the automotive and gaming markets. But there are already signs that similar shortages could be on the way.

This year’s bleeding-edge 5nm, 7nm, and 10nm mobile SoCs are competing for space on the same manufacturing lines as automotive, games consoles, and graphics cards. Some reports are already pointing to a shortage of flagship Qualcomm Snapdragon 888 chipsets, which will have a knock-on effect for stock levels. Rumors suggest this may be partly behind Samsung’s decision to skip 2021’s Galaxy Note launch.

Also read5nm chipset showdown — Snapdragon 888 vs Apple A14 vs Kirin 9000

Even if there’s a reasonable supply of 5nm processors, other components may end up being the supply bottleneck. Audio, power, radio-frequency, and other integrated circuit components from less expensive fabs are still competing for manufacturing time against a huge range of other components. Reports suggest that Samsung is struggling with supplies needed for mid and low-end production. Other sources citing Realme (translated), point to out-of-stock power and radio components for their smartphones.

As well as impacting product availability, small component shortages have been driving up final product prices. Previously inexpensive microcontrollers are already selling for multiples of their historic prices and this is likely a similar case for common components found in smartphones too.

Smartphones are getting affected, but not too much

The third quarter of 2021 saw the global smartphone shipments fall by 6%, according to Canalys. Smartphone prices have gone up too, while Apple has cut back its iPhone shipment goals for Q4 2021. CEO Tim Cook also revealed to CNBC that the company faced an estimated loss of $6 billion, due to supply chain constraints. However, smartphones so far are doing a better job of evading this crisis than most other products have.

Qualcomm acknowledges that there is a problem with the chipset supply. During Qualcomm’s Q2 earnings call, CEO-elect Cristiano Amon noted that “we have seen, probably a shortage across the entire industry. It’s been broad across the industry, not unique to handsets.” Amon predicts that the supply and demand imbalance should “normalize towards the later part of 2021 as capacity is put in place.”

Although smartphone manufacturers are, so far, sticking to their handset release schedules, the supply of processors and other components is insufficient to ramp up global inventory. This is a bigger problem for smaller manufacturers who don’t possess the bargaining power of Apple and Samsung. Even if demand and supply align by the end of 2021, it could take months into 2022 for global inventory levels to catch up.

Manufacturers may end up directing limited supply with more restrictive regional launches. Higher prices across some if not all markets are also a distinct possibility, especially if component costs rise. Either way, the outlook for global smartphone shipments is primed to be as rocky as graphics cards and games consoles throughout 2021 and possibly well into 2022.