Imlisanen Jamir
Currently there is a massive global shortage of semiconductors and everything they are used to make. So CPUs, graphics cards, cars, even fridges. The two hardest hit sectors though are automotive and graphics cards.
From India to China to the US, automakers cannot make vehicles while components for computers are nowhere to be found, and even if one finds them, they are marked at ridiculous prices by retailers.
When people got stuck working from home, their old machines suddenly did not cut it. Families had to be online all at the same time and this led to a trend reversal. 2020 saw the biggest PC market sale increase ever. In addition, enterprises have had to heavily invest in their cloud services, to beef up their data centres with almost everyone working from home.
Automakers have had to stop their assembly lines because they cannot get enough chips to go into their cars. Back at the start of the pandemic, most companies reduced orders assuming demand for new cars would drop. And it did temporarily, until all of a sudden no one liked riding the bus with an infectious virus on the loose and demand came roaring back. By the time they realized, the fabrication capacity they had released had already been sold off.
Now for the other category drastically hit—graphic cards for computers. The rise of crypto currency and miners hogging on the supply of these cards is not helping the situation; but they are not the underlying cause, according to industry experts.
According to Nvidea and AMD, the only two companies manufacturing Graphics Processing Units (GPUs), a majority of GPUs are currently ending up in your everyday consumers’ hands. It’s just that way more people want GPUs than usual. And there is some data to back this up. Data from the online gaming platform Steam shows an explosion of users since the start of the pandemic. At the same time a new generation of value for money GPUs and a new generation of consoles came up after seven long years.
These companies have to guess how many GPUs they will sell months or even a year before the first ones hit the shelves. They got it wrong this time. This time around the demand was greater than expected. So why don’t they just make more? Because demand issues cause supply issues. And there are only two companies in the world that can make this kind of bleeding edge tech- Samsung Foundry and Taiwan Semiconductor Manufacturing Company (TSMC).
Under normal circumstances they operate between 80-90% capacities, but this time they are already running at 100% capacity. And companies are getting exactly what they pre-booked and not more.
Which raises the questions, is there even a strong motivation to solve this problem? High prices are good for companies, right? They have reported record breaking revenues due to this high demand. But capitalism has taught us that leaving any amount of potential sales on the table is straight up unacceptable.
Efforts to address this issue are being taken up with Samsung and TSMC building more infrastructures to produce more of these chips. But according to reports in Bloomberg, these establishments won’t come up until 2023.
And that’s just one part of the supply chain. The chips need testing, sorting, are forwarded to board manufactures, assembled, packaged etc. All of those factories are also running at capacity. So it’s safe to say that these shortages are going to continue for quiet sometime.
There is another burning question. Isn’t there a recession now? Why the demand for these expensive electronics?
Normally sectors most hit by a recession are goods manufacturing and construction. People make less money, they can’t buy much; simple enough. But the pandemic recession is much different. Recent data from the Nomura India Business Resumption Index suggests that economic activity in India is now only about two percentage points below pre-pandemic levels. Things appear to be getting back to normal.
But this has a dirty secret. In this situation, high earners and those conducting business remotely have done well. But restaurants, hospitality, entertainment and the like have remained closed for so long that many of these businesses have been decimated.
So savings of high earners have increased but they do not have the avenue to spend it on entertainment and going out. All this while our neighbourhood shops are teetering.
So here’s some advice. Maybe if you’re biggest problem is not being able to buy the latest tech or a car because they aren’t available or are marked way above MRP, then perhaps consider holding off on that for now.
Instead why not spending some money on a local business?
Comments can be sent to imlisanenjamir@gmail.com
