We have to look at several factors that created this shortage tsunami that blindsided everyone. We have broken them down into the following: supply, demand, unfortunate events, and poor decision-making.
Surge in Demand
When Covid-19 restrictions rolled out worldwide, stay-at-home mandates were the norm to prevent the transmission and spread of the virus. Everyone shifted to work from home setups, businesses went online, and messaging applications were downloaded immediately. Consequently, demand for additional electronic gadgets skyrocketed. People upgraded their laptops, purchased new desktops, more tablets, etc., to meet the requirements of the current situation.
Aside from facing COVID-related challenges, some of the biggest foundries in the world were hit by a series of unfortunate events that disrupted their production process even more.
On March 19, an electric overload burned down 600 square meters of the Renesas plant in Naka, one of the most prominent players in the global chip market. It destroyed 23 machines and rendered other areas in the facility temporarily unfit for use.
The plant was running to total capacity again by June, but the damage has been done.
In Taiwan, the worst drought in recent memory threatened to make the chip shortage even worse. Producing chips require tremendous amounts of water, which the drought is making impossible to do. In Texas, winter storms forced some of the country’s only chip plants to stop production.
Still, there are only a handful of big chip manufacturers globally, making the semiconductor industry more vulnerable.