The severity of the global chip shortage has disrupted companies throughout 2021 and as we enter 2022, the shortage isn’t going to disappear. As a result, the current processor-chip shortage and supply-chain disruption may have a long-term impact on price and availability.
We ask Mario Galatovic, VP of Product Management & Technical Alliances for his views on the major supply chain problem.
Please can you explain the ‘global chip shortage’?
Today, millions of products rely on semiconductors, usually known as microchips or just chips. These chips perform various functions in modern products and at times, there are often more than one in a single device. So, we could say that chips are the lifeblood of modern society, powering a wide range of various electronics that make the world that we live in possible. It is these chips that are in short supply- there are not enough of them to meet industry demand. No other component is more responsible for the tremendous global supply shortages and supply chain bottlenecks that continue to define our economy.
Why is there a chip shortage?
Digital transformation and the increasing surge for new technology have all heightened demand on the semiconductor industry and the technology companies that power the digital world.
The internet has been accessible to practically everyone around the world since the emergence of the smartphone. The vast amount of our activities are now carried out online, resulting in the need for fast and reliable internet, while technical advancements such as 5G and the Internet of Things have accelerated digitalization and chip demand.
The global chip shortage originated as a result of a combination of various events, including the above, that subsequently snowballed due to the COVID-19 pandemic: as the world shut down and many factories closed, demand increased as digital devices became our primary method of connection with the outside world, making the supplies needed for chip manufacturing unavailable for many months.
Even before the pandemic, demand for chips exceeded supply, Taiwan and Korea are controlling the largest share of chip production today. Despite being an American invention, only 12% of chips are produced in the United States today.
Within Utimaco, this hasn’t affected us and we are still able to offer our trusted products and services that our customers continue to expect from us.
What industries are affected?
There are chips in nearly everything we own - from phones to computers and gaming consoles to cars. Even your refrigerator has one, so does a printer, certain toys, as well as IoT devices and your key fob that allows you access to your vehicle. This also affects industry sectors - the banking and payment industry being one prime example. Payment cards that are used on a regular basis to make payments also require chips, and therefore this would have a direct impact on customers resulting in a knock-on effect on the global retail chain.
One of the largest sectors that has been affected is the automotive industry. In 2020, the demand for automotive chips declined as orders for new cars fell at the beginning of the year and semiconductor factories shifted capacity to consumer products. When the auto sector demand rebounded in the second half of 2020, automotive manufacturers struggled to acquire chips. Chips are used in the automotive sector for engine-control and service functions as well as for other areas.
The eHealth industry is a further example - with medical device makers. Chip components are key for life-saving tech and vital devices such as MRI machines, pace-makers and blood sugar monitors.
Another example would be telecoms industry - routers, smartphones, and agriculture (or AgTech)- farm equipment manufacturers also have been impacted in their production - combine, tractors and logistical technology have also seen the impact of the chip shortage.
These are simply examples, and are certainly not conclusive. The list goes on!
How exactly does this impact the industries?
This means that this supply crunch for chips has a magnitude impact on all large manufacturers - sales of phones and tablets, car sales etc - damaging production across a number of industries. With new levels of demand, orders began to pile up which has now resulted in a backlog for consumer electronics. We must also take into account the fact that 90% of the world’s electronics go through China Yantian port, and while it was closed, hundreds of container ships were unable to dock, creating a further bottleneck for when the port opened again.
When Covid started, some companies also cancelled their orders for chips due to their thinking that the economy was about to plummet. This meant further explosive demand down the line, having an additional impact on the shortage of chips.
As you can see, chip demand has had a compounding effect on the distribution of goods across a number of industries!
I think that it’s also important to point out that semiconductor chips are used today, not only to control systems, but also to protect them against security threats.
What does this mean for the average customer?
From a retail perspective, I would say that what it will mean is that the average person may see low stocks or indeed, prices that are now slightly higher. In some cases, manufacturers have skipped launches of certain products because of this.
So yes, everyday appliances are at risk. It may not seem evident at this time, however, some months ahead could be of particular concern.
However, wIthin the payment sector; this will have a phenomenal effect that the chip shortage could extend to payment card manufacturers who require chips to produce cards.
What this means is that not only manufacturers and retailers are feeling the impact, but yes, the end consumer would now be affected and on a much larger scale outside of consumer goods.
How do HSMs fit into the manufacturing process?
Utimaco Hardware Security Modules (HSM) also contain one or more chips which are required for carrying out cryptographic operations. It’s mind blowing when we think about how many day to day devices, appliances and services are reliant on these chips!
HSMs are used to provide the root of trust to all industries. In particular, within the manufacturing industry, a final product may contain the products (or ‘components’) of more than one manufacturer and therefore, component authentication is a crucial element of security. For this purpose, HSMs are used in order to secure the supply chain throughout the manufacturing process - ‘security by design’, we could say.
Utimaco HSMs provide trusted end-to-end processes that range from PCI compliant payment card processing, bank card issuing and cardholder authentication, manufacturing and IoT, through to telecommunications. HSMs are used to meet established and emerging regulatory standards for cybersecurity and help to address product compliance and certification requirements including FISMA, FedRAMP, FICAM, Certificate Policy of the Smart Metering PKI, eIDAS, GDPR and PCI DSS.
As mission critical devices mandated by these regulations, it is imperative that all industries requiring HSMs are able to purchase and implement these as part of their business. If the chip supply affects the lead times for HSMs this can have detrimental effects on the business security which can result in negative publicity, loss of customers and substantial fines.
Do you have any thoughts about how long the chip shortage will last?
I think that the global chip shortage will undoubtedly continue in 2022. It could improve in mid Q3 as supplies become more available. However, this merely means that we may see some improvements to the supply chain, however repercussions could go into 2023.
What provisions have Utimaco taken to overcome this situation?
We are pleased to say we have secured our relationship with our suppliers to match the growing demand with the availability of our products. What this means is, we are able to deliver our products on time and at the quality required, so if your business has a strict project or compliance deadline to meet, need to urgently increase service capacity or are experiencing difficulties sourcing products from other vendors then UTIMACO can help!