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Chip shortages in 2021, what can big manufacturers do?

So far, the major manufacturers are not talking too much about shortages or problems with silicon, but rather that the demand is too high and that their supply cannot reach the required figures. This is curious because, precisely, silicon is one of the most abundant materials on earth and there should not be too many problems in continuing to extract it, but since there is a long chain of intermediaries from the raw material to the material that manufacturers receive, everything could to be.

The problems that generate chip shortages

It is a fact that the main contenders in the industry have already set to work to try to solve this shortage of chips, and in the last weeks or months we have seen news of millionaire investments in different factories of the first order with the objective of being able to increase its manufacturing capacity; The problem with this is that because a few million are injected into a manufacturer, they will not be able to double its manufacturing capacity overnight, but there is a process of expansion, adaptation and start-up works involved. that can take years to establish a new level of production capacity.

The situation is aggravated if, as it seems to be happening, the raw material supply chain is beginning to weaken and manufacturers do not obtain enough material to be able to take over their production capacity. In other words, the current situation would broadly be the following:

  • The market is generating a demand for 150.
  • Factories can only manufacture 100 at full capacity. They do not meet the demand.
  • The supply chain only provides raw materials to manufacture 80.

Thus, the situation has now led not only to demand being much higher than supply in terms of chip production, but factories cannot even be manufacturing at full capacity because they are not getting enough raw materials.

What could be done to end the problems?

The situation is really complicated, since, as we have already told you, the first step, which is the injection of capital to increase production, has already been taken, but for the fruits to be seen, it will still take a while, so obviously this is not going to work. to help the situation to be solved this year.

What could be done is to reinforce the situation of the supply chain, so that the factories can be producing at 100% of their real capacity, but since there are so many intermediaries, it will be a bit difficult to be able to limit and identify where the problem is. . A matter of investing and research, but this is something that only the manufacturers themselves know and therefore are the only ones capable of solving the problem.

This would improve the situation a bit by increasing production capacity, but it would definitely not solve the problem of chip shortages. Unfortunately, at this time the only way to arrive at a real solution is to wait until the demand is not as high as the supply, that the manufacturers are able to fulfill all the orders and that they “overstock” to be able to stockpile. stock in view of a new rise in demand. The problem with this is that the most optimistic market analysts predict that this will not happen until at least 2022 or 2023.

In other words, things are quite complicated and it seems impossible to solve the problems this year. We will have to wait at least until 2022/2023 which, according to analysts, will be the time when demand normalizes, and the good part is that by then these million-dollar investments to increase production capacity will have probably already paid off and the ability to create chips will have increased to the point of supplying demand and creating some stock for future orders.

In short, both manufacturers and governments are doing what they can to solve the problem but all solutions are in the medium or long term, there is no magic formula that will get us out of the quagmire of shortages overnight, like this that we can only settle for what’s out there and keep waiting.