In its first quarter report, Apple has anticipated the challenging days ahead as the shortage of chips will escalate. Its growing demand may not be able to keep up due to the anticipated shortage.
Apple certainly is not the only one who faces this challenging shortage. Intel, Nvidia, AMD, and Samsung have expressed concerns over this issue, says Jack Gold of Venturebeat. Furthermore, it is not just the mobile phone industry who will be facing this challenge. This will greatly affect the cloud and enterprise data centers too. And reports said of automakers reducing production due to the shortage of chips.
The escalating demand of new gadgets that supports 5G worldwide is also adding pressure on the market. In this so-called smart and highly connected world, we mostly need the chips as well.
Is there really a shortage of chips?
Many have wondered whether there is really a shortage of chips, or this is just an overblown concern. Some say that this is a legitimate concern but it doesn’t affect everyone the same way. The biggest users of chips are Qualcomm, Nvidia, AMD, Apple, Samsung, and others. They already have a high volume of standing orders from the biggest chip makers like TSMC, Global Foundries, Samsung, and others. And once supplies are available, they will be the first to get the priority for their standing orders.
Ordering high volume products for long term is what makes manufacturers sustain their profits. They order products over a long period and have proper inventories based on projections. They just don’t order at a time of need but do so in advance.
Other companies like automakers don’t place advance orders for inventories. Instead, they do so at a time of manufacturing causing delays when the shortage of chips happens. Meanwhile, less priority customers have to wait for a long queue when they do orders or add some orders. This has affected the ramping up of production to meet the increasing demands, especially in the PC space.
No more room for manufacturing volumes
The critical problem Apple and other similar companies are facing is that the production has reached its full capacity. And there will be no more room for the increasing demand, as nobody anticipated this concern before.
It will take time and requires significant additional investments for Chipmakers to expand its current production capacity. Normally, it takes 2 to 3 years and an additional $10 to $20 billion investments to build a new production line. Discussions are ongoing for expanding production sites to other countries like India or China, but starting a new production from scratch is a slow process.
How long to stabilize supply?
With all these combining factors, it may take around 18-24 months to stabilize the availability of the chips. Until resolving all of these, we can anticipate negative impacts to many companies due to the shortage of chips.
How to respond now?
The impact on businesses differs in varied ways. We can anticipate shortages of some products like PCs, Chromebooks, and some high-end mobile devices. They will still be available, but perhaps not at a good price.
Businesses ought to do proper planning and make efficient inventories. In this way, they know how to position themselves given the reality.