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Apr 20, 2021

The global chip shortage is hurting startups dreaming up new products

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Semiconductor supply is not likely to meet demand at least through 2022.

The shortage of semiconductors that has shut down some car factories isn’t going away anytime soon, even though chipmakers are building new factories and promising to ramp up production. The thing is, there are computer chips in everything these days.

Look around you right now. If you’re at home, maybe you see your laptop or internet router. They have chips — that’s obvious. But there could also be a chip in your toaster oven, your light switch or your electric toothbrush.

I spoke with Hal Hodson, a technology correspondent at the Economist. He said the chip shortage is causing delays of all kinds of products, especially the ones you don’t even own yet. The following is an edited transcript of our conversation.

Hal Hodson: In some ways, I think the shortage is hitting people who are trying to build new stuff the worst. It’s one thing to not be able to get your product, it’s another thing to have your company falling over because you can’t make any progress. I’ve heard about, for instance, companies that make radar chips, who are not able to get anything supplied anymore. And radar chips, you might find them in, for instance, autonomous cars. It’s one of the ways that the car watches the road to see what’s out ahead. And so if you think about that, that’s definitely going to be inhibited by the supply crunch right now. And probably new companies that are either failing, or at least going to take a couple more years to come to market because of this, because things are backed up until 2023.

Marielle Segarra: And can companies just use other, maybe less advanced chips to make their new products?

Hodson: They can. It’s not going to be ideal because you’re not going to be working with the technology that ultimately you want to use, so it’s a bit of a trade-off. You also won’t necessarily have a supereasy time finding those. One of the problems, and the reason that this supply crunch is so bad right now, is because the number of producers of chips has been going down and down and down over the last 30 years, really, and the market for the production is now really, really concentrated. But that kind of thing is certainly happening. And I know about plenty of startups that are trying to take alternative approaches, use different chips and change their whole product around as a result.

Segarra: With startups having to scrounge around for chips and delay plans, what do you think the impact of that is going to be? Will we see fewer new devices in a year or so?

Hodson: I genuinely think we probably will. And bear in mind that a lot of new devices come out from big companies, like Google and Apple. And I think we’re less likely to see delays in those sorts of things. But even still, I think it’s totally plausible that we will see delays. Probably not in a year because the life cycle of creating a new piece of electronics is longer than that. So I would actually say in more like two, three, four years, you’re likely to see the impact of this, maybe in delays, in products that you were expecting to come out. But most likely, in kind of more niche, innovative areas. I think delays to autonomous cars are reasonably likely, even though they’re already delayed. And definitely there will be a bunch of startups that no one ever hears about because they won’t make it, because this has just made their business of assembling a new piece of electronics too difficult.

Segarra: This is coming at a time when so many products use computer chips, especially things that are “smart” devices. So do you think some companies might make more “dumb” products in the next few years?

Hodson: Part of me thinks that that would be smart. If you think about buying a big television — it’s almost impossible to get a big television that doesn’t come with an internet connection these days. And that’s reasonable, given that so many people rely on streaming. But what a lot of people do is plug in some other device that does the streaming for them. And so I could totally see there being a market for TVs that are not smart. They would still have chips in them, of course, but they would definitely need less chips and a lower variety of chips. I could see that kind of product making sense. But I think, inexorably, the trend is towards more chips and more stuff. And even if there were a niche for kind of “dumber” devices — and I’d probably consider myself to be interested in those sorts of devices, and I’m sure maybe lots of listeners would be — the overall trend is more chips and more stuff. So I’m afraid even if that worked for some small percentage of companies that want to market new ideas and new products to folks, overall I think the crunch would still be here.

President Joe Biden joins a CEO Summit on Semiconductor and Supply Chain Resilience via video conference with National Security Advisor Jake Sullivan from the Roosevelt Room at the White House on April 12, 2021, in Washington, DC.
Last week, President Joe Biden joined a CEO Summit on Semiconductor and Supply Chain Resilience via videoconference, which focused on the global shortage of silicon chips used in electronics. (Amr Alfiky-Pool/Getty Images)

Related links: More insight from Marielle Segarra

As we put this show together, I got kind of obsessed with figuring out which items in my apartment have a chip in them. Still not sure about my electric toothbrush, though. I mean, it’s not the smartest device. It doesn’t connect to the internet and I am perfectly happy with that. But it does tell me when I’m brushing too hard and when to stop. So I think it might be chipped. There are all kinds of chips. Some store data, some process information, some render graphics. Investopedia has a write-up explaining the different kinds.

And if you want to understand how this global chip shortage happened, CNBC has a really helpful piece on this. It goes into the backstory and the geopolitics involved here. Part of the problem is people have been buying more computers during the pandemic. But environmental disasters have played a role too. The deep freeze in Texas and a recent earthquake in Japan both forced chipmakers to close factories temporarily.

Something that could make the shortage even worse? Two-thirds of the world’s computer chips are made in Taiwan. Right now, according to The Wall Street Journal, Taiwan is facing its worst drought in half a century. And it turns out that you need a lot of water to make computer chips.

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