Why Is There A Microchip Shortage In The First Place?

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ars mentioning that the impact of the global microchip shortage now extends beyond the automotive industry – smartphones, home appliances, and numerous other industries around the world have all been affected by a scarcity of these small, but critical components. This is important to keep in mind as dwindling microchips supplies are sought after by a multitude of different industries in order to continue to do business, thus increasing competition.

        However, if we were to discuss the root cause of the microchip shortage, we could point to the COVID-19 pandemic as the primary driver. As lockdowns were put in place in the U.S. and abroad, consumers started buying a raft of products that require microchips to function. For example, workers looking to log on from home started buying laptops and computers, while televisions, video game systems, and tablets became a hot commodity to help stave off boredom.

        In addition to an uptick in demand for consumer electronics, people bought more cars than expected last year, draining supplies even further.

        Amid soaring demand, microchip production has stumbled as well, with outbreaks of COVID-19 shuttering facilities, much like in the auto industry. Most microchip production is centered in Asia, and although U.S. semiconductor companies total nearly half of all global sales, only 12 percent of the global manufacturing is done stateside.

        Put it all together, and we have our current and ongoing microchip shortage. Back in February, President Biden said he was seeking $37 billion in funding to help boost domestic chip production, while General Motors says it is seeking new supply contracts in order to mitigate some of the effects of the shortage.

        Unfortunately, with the ongoing COVID-19 pandemic and continuing high demand for products requiring microchips to function, it looks like we’re still quite a ways off from ending the shortage.

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