Global Chip Drought Will Be A Memory In 2023, Expert Says

You might be tired of hearing out this, but the ongoing worldwide semiconductor shortage isn’t going to be behind us until some time next year, but at least there's some light at the end of the tunnel.

The idea that a lack of computer chips can cripple the consumer electronics industry is pretty easy to understand, but its follow-on effects on the automotive industry are just as real and impactful.

Global semiconductor shortage to ease in 2023

Bottom line is that as the chip supply is tightened, the largest semiconductor customers get priority treatment at the expense of the second-highest bidders. To put it simply, the silicon wafers going into your iPhone are causing your car delivery to be delayed.

Still, that’s somewhat understandable given the health crisis we’ve experienced over the past 2 years (mostly) regardless of country or culture, but the good news is that economists are predicting a return to normalcy in 2023.

According to Tim Uy of Moody’s Analytics, the aggregate semiconductor chip lead time (or “the time it takes for a microchip that is produced to reach the end consumer”) fell in July. Though it was only a slight dip, it’s an encouraging sign that the worst is past us.

In his report titled The Uncertain Future of the Chip Shortage, Uy has been keenly observing the semiconductor industry that powers everything from computers big and tiny to cars and even smart kitchen appliances these days.

“While the decline is notable given the upward trend in lead times in the past couple of years, 27 weeks is still far from the norm, and we expect lead times to remain elevated going into 2023,”

“At the core of the chip shortage is the fact that most of the world’s advanced chips are manufactured in Taiwan and South Korea, and there are significant entry costs to penetrate this market,” he said.

The pandemic managed to strangle supply since the factories fabricating them were forced to halt operations, but also simultaneously dramatically increase consumer demand as it hastened the pace of and reliance on digitisation across the world.

Transitioning to electric mobility will require the global chip supply to hasten

As the world shuffles around a transition toward electric mobility, it will be incumbent upon the global chip supply to rocket output as EVs use approximately 10 times more computer chips than conventional combustion vehicles.

This, coupled with supply chain disruptions in other economic sectors, could exacerbate the price pressures already being experienced, leading to elevated inflation levels not seen in decades.

“Both Intel and TSMC have indicated that they are raising prices later in the year and in 2023 because of rising raw material and production costs. This comes at a time when demand for consumer electronics is softening, though demand for automotive and data centre clients remains strong. As the situation normalises, we will see some divergence in the demand and supply balance for various chip applications,” Uy added.