Is the Semiconductor Chip Shortage Finally Easing?

For the past 24 months, the world has faced a massive semiconductor shortage. From consumer electronics to specialized manufacturing equipment, there simply haven’t been enough chips to go around — and the effects have been critical for some industries.

Now, as we look ahead to 2023, there’s a glimpse of relief on the horizon. Some chipmakers are meeting demand, while others still have demand that far outweighs supply. What is the current state of the semiconductor shortage in advance of the new year?

The present semiconductor landscape

Following years of instability, the semiconductor shortage appears to be easing — but only for some sectors. Thanks to stockpiling and reduced consumer spending, certain chips have caught up with demand. Now that the rush to buy laptops, game consoles, and other gadgets is tapering off, demand for chips in smaller size ranges is slowing.

Unfortunately, the opposite is the case when it comes to more advanced chips.

There’s still unprecedented demand for advanced chips needed for cybersecurity systems, medical devices, and telecommunications equipment. Lead times for these chips are around 52 weeks, compared to a pre-pandemic average of 27 weeks. The automotive industry has been hit even harder, and chip shortages have slowed down assembly lines for nearly every major automaker. For example, Toyota has trimmed its full-year production plan by 500,000 vehicles, despite expectations for record output next year.

Reasons for production bottlenecks

Why are chipmakers struggling to meet production demands? There are numerous factors at play, including the rising cost of raw materials, disruptions caused by the war in Ukraine, and lingering shutdown-related backlogs in parts of China. Inflation fears are leading to shrinking demand for consumer electronics and other goods. Consequently, some producers that couldn’t find chips last year are finding themselves with a surplus of unneeded chips this year.

Relief on the (distant) horizon

American producers can’t rely on foreign chip production to meet today’s demands, and Congress has taken notice. The passage of the bipartisan CHIPS Act earlier this year is set to strengthen chip production, but the results won’t materialize overnight.

Producers like Micron and Intel have already moved to capitalize on the newly available CHIPS Act funding, building chip fabrication plants to bring production back to the U.S. Although the situation shows promising signs of improvement, the underlying bottleneck still exists. The CHIPS Act is the first stride toward reshaping semiconductor production and fulfilling America’s need for a reliable source of chips.