With life coming on track as businesses opening offline and schools and colleges resuming again, manufacturing industries are still facing some aftershocks of the lockdown period.
Similar to the predictions forecasted by major market researchers, Chip Shortage in 2022 is still causing discrepancies in the supply chain as backorders keep piling.
Expected to be the year of recovery, semiconductor chip supply despite being slow is starting to catch up to existing demands.
Global Semiconductor Chip Shortage in 2022 is likely to continue easing during the second half of 2022 as demand-supply gaps slowly shrink back across most components supply, according to a recent report.
Seeing a rapid surge in electric vehicle adoption in the last few years, Chip Shortage in 2022 has added a perfect storm within the automotive industry that is now accounting for approximately 10% of chip demand.
If you want more detailed versions of Semiconductor Chip Shortage in 2022 and 2021, you can check out my previous articles “Deficit of Chip Supply Still Persisting in 2022” and “Chip Shortage Crisis Still a Nuisance in 2021?”.
Before discussing the recent developments in the supply chain and the Chip Shortage in 2022 scenario as a whole, let’s explore the reasons Why is Semiconductor Chip Shortage in 2022 still not easing?
Why is Supply Chain Still Showing Little Signs of Easing in 2022?
As discussed in my previous articles on Chip Shortage in 2022, after the lockdown period got lifted, manufacturing industries had a hard time coping with the time-lapse and with many backlog orders adding up, the speed of supply failed to meet up with consumer demands.
And it’s not just manufacturing capacity that was hard to come by but the manufacturers faced extreme shortages of wafers and packaging substrates too.
Raw materials like metals and plastics also faced acute shortage sources that increased the overall guarantee lead times. This is why the impact of the Chip Shortage in 2022 continues to reverberate across the whole electronics and product manufacturing industries.
Due to the continuous disparity, prices eventually increased via three different price increase scenarios:
- Disincentives to Prevent hoarding– In this case, many chip vendors applied for a temporary price increase to discourage hoarding.
- Outright Profiteering– As the name suggests, here intermediaries or commonly called brokers exploited the crisis by buying components at reasonably low prices and selling the excess stock at extortionate rates.
- Straight-forward Capitalism– Here some chip manufacturers decided to go for a capitalist policy of what many consider to be unprecedented demand and simply charge more for parts.
Another reason for Chip Shortage in 2022 can be attributed to a well-known supply chain phenomenon called the bullwhip effect.
Since product manufacturers face a struggle to keep up with demand and has supply uncertainties, they often over-order, assuming that only a fraction of their orders will be fulfilled.
Assuming the current demand will continue and grow, this over order then goes to a parts distributor who receives the inflated order will further inflate it and passes it to a tier-one supplier.
Repeating the same inflations, the tier-one supplier does the same and by the time the order reaches small, sub-tier suppliers deep in the supply chain, the original order becomes grossly proportioned.
These out of proportioned orders that are far over what buyers need are usually referred to as phantom orders.
With these phantom orders piling up the stacks, many consumers and engineers had to make do with the limited available alternatives like buying the parts at exaggerated rates.
Developments in Chip Shortage in 2022
Despite discussing the huge discrepancies in the supply chain above, the situation is now showing some signs of improving as the market of PCs, laptops and PC components like power management ICs, Wi-Fi and I/O interface IC has now significantly narrowed.
And many manufacturing facilities are now ramping up their manufacturing at more than 90% capacity which is already a high limit, the day is not far when the demand and supply gap reduces to almost zero.
A few countries like India are now moving forward to establish their domestic supply chain after witnessing the current scenario.
Still, these production facilities lack ample investments and need time and a skilled workforce to tackle the ongoing Chip Shortage in 2022.
However, the biggest risk factor coming up is the recent lockdowns happening across China right now, especially in and around Shanghai.
But if the government can manage this outbreak with minimum restrictions and support the manufacturing ecosystem, the impact of the broader semiconductor Chip Shortage in 2022 is expected to ease around late Q3 or by early Q4.