Why is there a shortage of semiconductors?

CAR MANUFACTURERS need more chips. A shortage of semiconductors is delaying production lines. Ford, General Motors and Fiat Chrysler (now merged with PSA under the name Stellantis) are among the firms that have temporarily shut factories this year. The scarcity of silicon components has caused a slowdown that will delay production of almost 1m vehicles in the first quarter of 2021, according to IHS Markit, a data firm. But it is not just carmakers that are hurting: Microsoft, Nintendo and Sony are running out of semiconductors for their gaming consoles. Samsung, one of the world’s leading chip manufacturers, has warned that smartphones could be affected. Joe Biden, America’s president, has signed an executive order mandating a review of critical supply chains, including that for semiconductors. Why is the world running low on chips?

The semiconductor industry is notoriously cyclical: gluts and shortages are not uncommon. But the pandemic has magnified the problem. Workers stuck at home rushed to buy kit. Personal-computer sales rose by 11% last year, the highest growth in a decade, according to Canalys, a research firm. Data-centre demand spiked as people turned to video-calling, video-streaming and video gaming. The car industry slashed sales forecasts during the first lockdowns then boosted them again as vaccines were developed. Other events have compounded the problem. Microsoft and Sony launched a pair of new video-game consoles, placing bumper orders with big chipmakers. With the soaring price of cryptocurrencies, “miners” have been willing to pay inflated prices to get their hands on certain kinds of chips useful for minting new digital coins.