Technology

The Effects Of Material Shortages On The Tech Sector

Modern technology as we know it can be under severe threat from the current material shortages. The production of new technical gadgets is all dependent on the availability of rare materials. This fact is keeping tech companies like manufacturers of industrial applications up at night.

 Studies conducted by the University of Yale in the US have shown that of the 62 durable metals required to manufacture smartphones, a total of 12 did not have any suitable alternatives.

Not only are these metals expensive to extract from the earth, but it bears a hefty environmental impact.

The shortage of computer chips

The shortage of computer chips is one that probably bears the most impact. Computer chips are used in an array of devices such as TVs, gaming consoles, and cars. This means, not only will there be a decrease in available stock–but they are also going to come with a steep price increase! The computer chip is, in essence, the brain of the device. 

Initially, the stock shortage was caused by the onset of the COVID-19 pandemic; however, with the livelihoods of people now changing, the impact is crippling as the demand has surged to such a level that manufacturers are not able to keep up. 

Car manufacturer Ford has had to cancel two shifts at its plant due to chip shortages, and fellow car competitors Nissan and General Motors are also sitting idle on their production lines.

 Both Microsoft and Sony have raised concerns over not being able to make target and subsequent profit this year due to the semiconductor shortage that will have an adverse effect on the production of their consoles, respectively. 

Even Apple is suffering the effects and might have to delay their new high-end smartphone as a result of the shortages.

The cause of the shortages

COVID-19 has caused a drop in car sales prices of up to 50% due to the imposed restrictions on traveling. Car manufacturer’s reaction to this was to decrease the flow of manufacturing and halting orders on car parts. This included the ordering of computer chips. Nowadays, cars are enabled by a vast range of these chips that includes anything from braking to steering management. 

Studies have shown that in the first half of 2021, as many as 672,000 fewer cars have been made in comparison to previous years.

While car demand has gone down, the demand for electronics has escalated. This is because many people had to get used to working from home as opposed to going into the office. This also saw people purchasing gaming consoles and other electronics to keep them occupied and as a means of escaping the growing concerns with regards to the pandemic.

The companies that are supplying the chips decided to change their primary focus from cars to other electronics instead, and both the sales and demand thereof are not expected to slow down any time soon.

Car sales have picked up again, and this has now seen electronic and car manufacturers vying for the top spot in the priority books to receive stock.

Why the increased output can’t be upped?

There are several reasons why manufacturers can’t just increase their output to meet consumer and manufacturer demands. One of these reasons stems from the ongoing trade war between China and the United States. Due to the ban imposed by then-President Donald Trump, both countries are now aiming to build their own chip companies on their respective shores. 

To add to China’s woes is the fact that in order to produce chips, tons of water is required. At the moment, the country is facing a water shortage, and truckloads of water need to be brought in. Lastly, a fire at one of China’s chip factories has made matters worse. 

The US has also not come off scathed as the cold snap in Texas also brought production to a grinding halt! The weather not only caused widespread shortages and disruptions, but it also caused market prices to soar due to temporary shortages of raw materials. These instances show just the widespread damage that a material shortage can have. 

Luke Fitzpatrick

Luke Fitzpatrick has been published in Forbes, The Next Web, and Influencive. He is a guest lecturer at the University of Sydney, lecturing in Cross-Cultural Management and the Pre-MBA Program. Connect with him on LinkedIn.

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Luke Fitzpatrick

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