Chip Shortages to Persist For at Least Another Year: Analysts

Intel
(Image credit: Intel)

The semiconductor industry is notoriously slow when it comes to reacting to sudden increases in demand. Some analysts believe that demand for chips now exceeds supply by about 30%, and it will take three or four quarters for the supply to catch up with the demand. Essentially, this means that chip shortages will persist well into 2022.

Chip Demand Is Booming

Nowadays, virtually all electronic devices have chips in them, so the demand for semiconductors is generally at an all-time high. Furthermore, these chips are getting more complex (i.e., harder to produce), and the number of chips per device is growing. Last year several additional factors increased the demand for chips to levels way above what the industry can supply.  

First, people began to buy more PCs and other electronics (which includes game consoles, televisions, smart home appliances) in 2020 because of the shift to remote working and remote learning, largely because they spend more time at home overall due to the pandemic.  

Second, existing manufacturing capacity (the number of chips that can be produced) barely served the demand in 2018 and 2019. It certainly is not enough to meet the demand that overwhelmed the industry in 2020 and 2021. 

It is noteworthy that Intel faced tremendous demand for its products in 2018 and took action, but the rest of the industry did not. Consequently, the world now faces a shortage of both semiconductor manufacturing capacity and issues with chip packaging. 

Third, the trade war between the U.S. and China made companies buy large quantities of semiconductors in advance (stockpiling), which pressured the supply chain further.

Supply of Chips Is 30% Below Demand

Because of the high demand for chips, stocks of semiconductor companies have soared in recent quarters as all of them are beating the expectations of analysts and their own predictions.  

"We believe semi companies are shipping 10% to 30% below current demand levels and it will take at least 3-4 quarters for supply to catch up with demand and then another 1-2 quarters for inventories at customers/distribution channels to be replenished back to normal levels," said Harlan Sur, an analyst with J.P. Morgan, in a note to clients, reports MarketWatch

According to Christopher Rolland, an analyst with Susquehanna International Group, lead times for semiconductors today are above 14 weeks (over 3.5 months), which exceeds the cycle time of even the most complex process technologies. Rolland says that the situation would get worse this spring after countries cease lockdowns and economies restart.  

"We do not see any major correction on the horizon, given ongoing supply constraints as well as continued optimism about improving demand in 2H21," wrote Matthew Sheerin, an analyst with Stifel. "We remain more concerned with continued supply disruptions, and increased materials costs, than we do an imminent multi-quarter inventory correction."

Capacity Build-Up Will Take Time

Major foundries, including Taiwan Semiconductor Manufacturing Co. and GlobalFoundries, have announced expansion plans for this year, and there are indications that packaging companies are going to do the same. However, it will take months for companies like ASML, Applied Materials, KLA, LAM Research, and others to build the fab tools; then, it will take some time to install the equipment. As a result, any capacity-related decision made now will not have an impact until several quarters from now, at best.  

Keeping in mind that demand is already outstripping supply by around 30%, and for many products, the backorder is building up, it will take months after semiconductor companies solve their capacity problems before everyone gets the chips they need. Meanwhile, it is unclear what happens to the 'excess' capacity after the demand is met and inventory levels get back to normal. 

Furthermore, it obviously remains to be seen whether fabless makers of chips continue to introduce new SKUs if they cannot meet demand for existing products.

Anton Shilov
Freelance News Writer

Anton Shilov is a Freelance News Writer at Tom’s Hardware US. Over the past couple of decades, he has covered everything from CPUs and GPUs to supercomputers and from modern process technologies and latest fab tools to high-tech industry trends.

  • Glad I built in Dec 2020... by the time I get ready to build again in 2025 or 2026 the shortages should be no more.

    Good luck everyone!
    Reply
  • Kamen Rider Blade
    This is why the move to 450nm waffers are critical step across the entire Semi-Conductor Industry, along with expanding the manufacturing supply chain into North America.
    Reply
  • spongiemaster
    The shortages aren't going to subside until Intel gets its 10nm process working with decent yields. Nothing else on the horizon has the potential to increase chip capacity significantly in the next year or so. Hopefully, Intel will get it right this year and we'll see Alder Lake and Sapphire Rapids early next year.
    Reply
  • Heat_Fan89
    The system builders like Dell, HP, Lenovo, Alienware are LOVING this news. This the first time in over 25 yrs I had to buy a prebuilt just to get an RTX 3080.
    Reply
  • Heat_Fan89 said:
    The system builders like Dell, HP, Lenovo, Alienware are LOVING this news. This the first time in over 25 yrs I had to buy a prebuilt just to get an RTX 3080.

    Paying that much over the card retail price is comparable to buying from a scalper eh?
    Reply
  • Heat_Fan89
    TravisPNW said:
    Paying that much over the card retail price is comparable to buying from a scalper eh?
    Not really cause I was in the process of building a system rig for Microsoft Flight Simulator and trying to find a 5800X was tough and an RTX 3080 or RX 6800 XT was impossible. So it was a new system build and I paid a couple hundred more than if I did it myself. Granted, I would have chose different components but I paid Amazon $2199.99 for an HP Omen 30L i9-10850K with liquid cooling, 32GB 3200Mhz, 1TB Nvme, 2TB HDD, RTX 3080, Corsair 750W PSU, Wifi -6.

    I could have gotten it for even less like, $1961 from Amazon but the scalpers and Bots who resell this same gaming rig on their website beat me to it before I could put the item in my cart.
    Reply
  • InvalidError
    TravisPNW said:
    Glad I built in Dec 2020... by the time I get ready to build again in 2025 or 2026 the shortages should be no more.
    It is also possible that demand will continue outstripping supply and the situation will persist indefinitely. With FSD, the average computing power in individual vehicles will increase by 10-100X and as the cost of computing power continues coming down, tons of menial jobs previously too complex for AI are going to get automated. We may also see an explosion in other autonomous vehicles of all sorts.

    The demand for computing power isn't over, it is getting started.
    Reply
  • salgado18
    Heat_Fan89 said:
    Not really cause I was in the process of building a system rig for Microsoft Flight Simulator and trying to find a 5800X was tough and an RTX 3080 or RX 6800 XT was impossible. So it was a new system build and I paid a couple hundred more than if I did it myself. Granted, I would have chose different components but I paid Amazon $2199.99 for an HP Omen 30L i9-10850K with liquid cooling, 32GB 3200Mhz, 1TB Nvme, 2TB HDD, RTX 3080, Corsair 750W PSU, Wifi -6.

    I could have gotten it for even less like, $1961 from Amazon but the scalpers and Bots who resell this same gaming rig on their website beat me to it before I could put the item in my cart.
    I'm sorry for the CPU. Otherwise, good call, it's a nice config.
    Reply
  • Heat_Fan89
    salgado18 said:
    I'm sorry for the CPU. Otherwise, good call, it's a nice config.
    The i9-10850K is fine. It gets me good results with the game that counts and doesn't get too hot. I would have preferred the 5800X but HP isn't selling those, yet but I have read recently that they will in the next 1-2 months.
    Reply
  • TerryLaze
    spongiemaster said:
    The shortages aren't going to subside until Intel gets its 10nm process working with decent yields. Nothing else on the horizon has the potential to increase chip capacity significantly in the next year or so. Hopefully, Intel will get it right this year and we'll see Alder Lake and Sapphire Rapids early next year.
    It's not like intel will use todays arch with 10nm, they will have to use more transistors both in the CPU and in the iGPU so the amount of CPUs per wafer won't go up, they might even go down I mean Alder is supposed to get additional smaller cores those are going to use a chunck of real estate.
    InvalidError said:
    The demand for computing power isn't over, it is getting started.
    The need to turn lawyers into cats is real!!!
    Reply