Discover the PCIM Europe

SEMICONDUCTOR SHORTAGE The global chip shortage: Causes and state of play in 2023

From Luke James Reading Time: 9 min

Related Vendors

It’s safe to say that a lot has gone on between the start of the chip shortage and the present day. But why is there a chip shortage in the first place? This article explains the causes of the chip shortage and shows the most important developments to date. This is followed by a short outlook.

The chip shortage is a global problem; a hugely messy situation that some analysts in the early days of the shortage predicted would be over and done with. Now, some say it might continue well into next year and beyond.
The chip shortage is a global problem; a hugely messy situation that some analysts in the early days of the shortage predicted would be over and done with. Now, some say it might continue well into next year and beyond.
(Source: kaptn -

More than two years since the emergence of the global chip shortage, it’s still very difficult for consumers to get their hands on a wide range of products. These include GPUs, microprocessors, and even vehicles, with many automakers unable to meet the demand for their vehicles and settle order backlogs. In some cases, vehicles are sat in warehouses awaiting one or two crucial microchips until they can be officially completed and shipped. In others, vehicles are being shipped with certain non-critical features missing.

What is the chip shortage?

A chip shortage is a fairly rare occurrence in the semiconductor and integrated circuit industry that occurs when industry demand is higher than supply, and there’s currently a substantial one that has been in focus since January 2021. But in fact, the chip shortage history has started already in 2018.

After 2021’s supply chain challenges, some are still hopeful that events this year will be a major steppingstone to getting over the worst of the semiconductor shortage. But solving it is an overwhelmingly complicated problem that cannot be solved quickly or easily. After all, the answer to the problem isn’t simply to make more chips—this is easier said than done. It takes several years and several billions of dollars to build semiconductor fabrication plants and get them online, all the while semiconductor technologies continue to become more advanced at an increasingly rapid pace. Furthermore, current labor market challenges and shortages mean that skilled workers are in short supply, and this is placing additional pressure on semiconductor manufacturers who are scrambling to find new ways to navigate the ongoing shortage.

What is causing the chip shortage?

To have the background of the global chip shortage explained, we need to look all the way back to 2018 and 2019, when trade wars began to cause supply chain uncertainty, and, predictably, 2020, when the COVID-10 pandemic emerged and decimated chipmakers.

2018 and 2019: Trade wars create supply chain uncertainty

A trade war has existed between the U.S. and China due to the actions of the Trump Administration in 2018. “The trade war took direct aim at Beijing’s ambitions to become a leader in advanced manufacturing technologies such as semiconductors and electric vehicles," wrote Josh Zumbrun in the Wall Street Journal in May 2021.

The first round of U.S. trade tariffs hit Chinese imports in 2018 and focused on raw materials such as silicon. Over time, the U.S.-China trade tensions led to the hoarding of wafer supplies when the U.S. blacklisted China’s SMIC in 2020. With so many key parts of the chip supply chain hindered, U.S. industries reliant on semiconductors—which is virtually any that produces anything electrical—were concerned that restrictions on Chinese imports would force China’s hand and lead to the development of their own semiconductor manufacturing ecosystem. And that’s exactly what happened.

Then along came the COVID-19 pandemic. This added a whole new dimension of problems for the chip market.

2020: COVID-19 decimates chipmakers

The pandemic played a huge role in the global semiconductor shortage. According to several analysts, including Glenn O’Donnell, the vice president research director at Forrester, this was largely due to skyrocketing demand for cloud computing services from providers like Microsoft Azure and Amazon Web Services. “They [the service providers] buy a lot of chips,” he said in a blog post.

Owing to this demand surge, industries had to scramble to meet supply and demand in a highly uncertain and volatile economic climate. For chipmakers, production was halted for almost half of 2020 due to government shutdowns and COVID-19 restrictions. This piled onto the shortage to such an extent that by the time production resumed, semiconductor companies were well behind and had to adjust to severe demand pressure from various sectors.

The automotive sector was the prime example of this. It was a huge demand surge as consumer purchasing behavior shifted in the second half of 2020. As economies began to re-open, consumers dodged public transport due to the pandemic and started purchasing their own vehicles. This shifted the focus from consumer electronics to automobiles, causing shortages in 8-inch wafers and ABF substrates necessary for automotive semiconductors. This was made worse by a fire at Japanese manufacturer Nittobo’s plant in July 2020. In response, Volkswagen, Ford, and Toyota, among others, cut, and in some cases completely halted their production in some factories, at a time when the automotive sector was booming.

2021: The chip shortage worsened

The chip shortage continued to worsen throughout 2021, with the snowball effect of the COVID-19 impact being one of the biggest driving forces. But besides the continuing trade war between China and the U.S., there were other factors: For example, storm Uri caused widespread power outages in Texas, which led to rolling blackouts. Manufacturers like Samsung, Infineon, and NXP Semiconductor were all forced to suspend their plant operations. To add to all the chaos, a drought in Taiwan, the country’s worst dry spell in half a century further threw chip production into disarray. This is because wafer fabrication requires large quantities of water for the production process.

Subscribe to the newsletter now

Don't Miss out on Our Best Content

By clicking on „Subscribe to Newsletter“ I agree to the processing and use of my data according to the consent form (please expand for details) and accept the Terms of Use. For more information, please see our Privacy Policy.

Unfold for details of your consent

In addition, automotive companies across the world anticipated a decline in demand at the beginning of the pandemic. As a result, they chose to order fewer semiconductors to reduce potential inventory costs during shutdown periods. Meanwhile, consumers began upgrading their computers, phones, and other electronics amid lockdowns. Sony also released the brand-new console, the PlayStation 5, to the reception of millions who had pre-ordered it. So, while demand fell in the automotive industry, it grew in all others.

This led to a crunch situation when automotive manufacturers found that they couldn’t resume normal manufacturing due to the shortage of chips and the shift in consumer demand. The consequence were lots of canceled orders while chip manufacturers focused on consumer products in an attempt to meet growing demand. After retooling their operations to produce chips for consumer items rather than automobiles, an even worse shortage of automobile chips ensued and throughout the year, a huge number of auto manufacturers were forced to pause some of their operations. Some of the larger automakers such as Volkswagen and General Motors were forced to stop and start operations in key locations several times. The tip of the iceberg was a fire breakout at the Renesas Naka factory in March. This impacted a building where two-thirds of the company’s wafers for automobiles were produced, causing yet more problems for automakers.

2022: A troubling start with eventual recovery

2022 was a tumultuous year for the semiconductor industry as the chip shortage persisted much in the same way it had done in the years prior, only this time with new challenges arising.

The outbreak of war in Ukraine, rising tensions between China and the United States which led to new trade restrictions, including a bar on federally-funded U.S. tech companies from building facilities in China, and a resurgence in coronavirus cases in parts of the world caused significant problems for an industry vying to correct inventory challenges.

The price of neon, a noble gas needed for lasers in chip production, had also increased sixfold by March 2022 due to the COVID-19 pandemic and war in Ukraine, with the supply of neon being severely constrained. This caused further issues for chipmakers as they struggled to secure alternative supplies.

Residual shortages and challenges facing chipmakers meant that throughout the year, several automakers reported stagnated production as vehicles were stuck on lots awaiting their chips. In April, UK car production fell to the lowest point since 2009, Volkswagen was forced to remove features from several of its newest models, and wait times for chips increased by two days. The White House called the chip shortage an “emergency” as a result and pressed ahead with its plans for the CHIPS Act, which was eventually signed into law in August to provide roughly $280 billion in new funding to boost domestic research and manufacturing of semiconductors in the United States.

Things were looking up by the end of July, with both Volvo and Nokia weighing in with their thoughts that the chip shortage appeared to be easing, and TSMC publishing revenue estimates that reported its highest growth in almost three years. Honda also increased its annual profit forecast in August, and the Semiconductor Industry Authority announced that worldwide sales of semiconductors totaled US$152.5 billion during the second quarter of 2022, representing an increase of 13.3 % over the second quarter of 2021 and 0.5 percent more than the first quarter of 2022. Chip delivery times also fell in August.

In the final quarter of 2022, however, some struggles resumed as Honda cut its output by 40 % in Japan, Toyota failed to meet its October production target, and assembly lines at both Renault and Stellantis were halted at some plants. By the end of the year, several analysts had gone on record to say that they estimated a continuation of the chip shortage in 2023.

Global chip shortage 2023 - a status quo

In Q4 2022, KPMG, in partnership with the Global Semiconductor Alliance (GSA), conducted its 18th annual global semiconductor industry survey. This captured insights from 151 semiconductor executives about their thoughts on the industry going forward.

According to the survey, the current Semiconductor Industry Confidence Index score is currently 56 for the year 2023. In other words, the survey’s respondents, more than half of whom are from companies with more than USD 1 billion in annual revenues, have a more positive outlook than negative for the year ahead.Much of this optimism stems from the fact that the supply disruptions experienced over 2020-2021, and to a lesser extent during 2022, are likely to substantially improve throughout 2023. Indeed, reports from many automakers thus far are promising.

In January, UK automaker Jaguar Land Rover announced that its finances had recovered, Ford stated that it expects the chip shortage to ease this year, as did ABB, and Hyundai India announced its plans to increase production capacity from June. At the same time, UK car sales fell to a 30-year low, car prices rose in Thailand, and Volkswagen’s sales fell to an 11-year low. Some of this, analysts say, can be pinned on the ongoing cost of living crisis.

As of the end of the first quarter, the situation is looking slightly better. UK car production rose 6 % during this period, U.S. new vehicle sales rose, Toyota set a new output record (but warned chip shortage pressures still linger), and Honda reported a 2 % growth in domestic wholesales for March.

Meanwhile, efforts to scale the production of semiconductors in the European Union have pressed ahead at pace. Legislators recently agreed to invest €43 billion in domestic semiconductor production through what is being dubbed the ‘EU Chips Act’, a new legislative proposal by the European Commission to encourage semiconductor production in the European Union. A new Europe-led semiconductor consortium has also been established. ‘SEMI Europe’ will establish the so-called ‘European Chip Skills Academy’ under EU Chips Act plans in a bid to solve critical skills and talent shortages.

Stay up to date and follow the most important chip shortage updates in 2023 here:

Future prospects

We’re now several years into a seemingly endless semiconductor shortage that seems as if it could be around forever. But things are beginning to look up and with each passing month, we’re seeing consistent, encouraging results from automakers, watchdogs, and industry associations that show a trend of slow but steady improvement. At the moment, the overall mood is positive among analysts and automakers alike. 65 % of executives surveyed in KPMG’s annual survey said that they think the semiconductor shortage will ease in 2023, with 15 % stating that they believe supply and demand have already been balanced for most products. Only 20 % think that the shortage will continue into 2024.

chip shortage outlook for 2023.

Follow us on LinkedIn

Have you enjoyed reading this article? Then follow us on LinkedIn and stay up-to-date with daily posts about the latest developments on the industry, products and applications, tools and software as well as research and development.

Follow us here!