Computer chip shortage: From scarce to stacked

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  Quantumrun Foresight
• August 27, 2024

Insight summary

The shift from a global computer chip shortage to a surplus has reshaped various industries and economic landscapes. As chip availability increases, consumer electronics prices may drop, making technology more accessible but potentially leading to job losses in the semiconductor sector. This change may also prompt governments and companies to rethink strategies, balancing production with demand while considering environmental and economic policies to support stability in the semiconductor market.

Computer chip shortage context

Initially driven by COVID-19 pandemic-induced disruptions, the global computer chip shortage has notably evolved into a surplus in specific market segments in 2023. The initial shortage began when automotive manufacturers cut back on chip orders due to decreased demand for cars, which unexpectedly collided with a surge in electronics purchases by consumers confined to their homes. This mismatch between supply and demand led to significant production delays across various industries, notably automotive and consumer electronics. However, as companies ramped up production to compensate for deficits, many sectors began to experience a reversal by mid-2022, transitioning into an oversupply, or glut, of chips.

Governmental interventions have played a crucial role in stabilizing and expanding chip production capacities, particularly evident in the strategic funding initiatives like the 2022 CHIPS (Creating Helpful Incentives to Produce Semiconductors for America) Act in the US and similar measures by the European Union. These efforts, aimed at strengthening domestic manufacturing capabilities, have resulted in an increased production of semiconductors. For instance, substantial investments were directed toward enhancing the production capabilities of older, less advanced semiconductor fabrication facilities (fabs) essential for manufacturing automotive and industrial chips. By late 2022, these fabs saw increased output, contributing to the shift from scarcity to surplus in specific chips.

As industries adjusted to the new supply dynamics, demand for some products began to wane due to economic slowdowns and reduced consumer spending. This decline in demand has led to an accumulation of inventory, particularly in memory chips like NAND and DRAM, which are used extensively in consumer electronics and data centers. Companies that had aggressively stockpiled chips to avoid production halts during the shortage found themselves with excess inventory as demand dropped. As a result, leading semiconductor manufacturers like Samsung, SK Hynix, and Micron have faced reduced revenues and are adjusting their production strategies to align with the current market conditions.

Disruptive impact

As chip prices decrease due to oversupply, consumer electronics such as smartphones, laptops, and appliances may become more affordable, enhancing access to technology. However, semiconductor industry employees might face job instability or layoffs as companies adjust production levels to manage surplus inventory. This situation may require individuals to adapt by acquiring new skills or transitioning to different sectors less vulnerable to such cyclical fluctuations.

Companies involved in manufacturing and selling semiconductor-based products will likely experience lower production costs, which could enable them to invest in new product development or enhance existing product features while maintaining competitive pricing. However, firms may also encounter challenges with excess inventory, leading to potential financial losses if products remain unsold. Strategic planning will be essential for these companies to balance production with demand forecasts to avoid future discrepancies between supply and demand.

Governments may need to consider revising economic policies to support semiconductor companies facing market fluctuations, including subsidies or tax incentives during periods of excess supply. Additionally, as nations strive for technological independence and security, a glut in the market may accelerate efforts to establish local chip manufacturing capabilities to reduce reliance on foreign suppliers. International trade policies might also be adjusted to protect domestic industries from global market volatilities, ensuring a stable supply of critical components like semiconductors.

Implications of computer chip shortage 

Wider implications of computer chip shortage may include: 

• Reduced profit margins for chip manufacturers due to oversupply, potentially leading to consolidation in the semiconductor industry.


• Accelerated adoption of remote work technology as businesses leverage the reduced costs of computing equipment to facilitate flexible working arrangements.


• Shifts in labor demand within the tech sector, leading to more jobs in chip logistics and inventory management as companies seek to optimize their supply chains.


• Potential environmental benefits as semiconductor firms invest in more energy-efficient manufacturing processes to cut costs and reduce ecological impact.


• The introduction of more stringent e-waste recycling regulations as governments respond to the increase in disposable electronics.


• The development of secondary markets for semiconductors, where excess chips are repurposed for other technologies, promoting a more sustainable use of resources.


• New business models in tech industries that prioritize leasing or renting electronics to manage the lifecycle of devices more effectively.


• Enhanced geopolitical tensions as countries vie for leadership in semiconductor technology, influencing global trade policies and international relations.

Questions to consider

• How could the increased affordability of electronics enhance educational opportunities in your community?


• What measures can local governments take to support semiconductor workers affected by industry shifts?