The global chip shortage, which has been caused by a combination of factors such as the pandemic, increased demand for electronic devices, and production disruptions, is expected to persist in 2023 and potentially into 2024. This shortage is affecting a wide range of industries, including automobiles, consumer electronics, and telecommunications.

The automotive industry is likely to be one of the hardest hit by the shortage, as chips are a critical component in the production of vehicles. This shortage is expected to lead to production slowdowns and even temporary shutdowns for some automakers, which could result in higher prices for cars and trucks.

According to Bank Negara Malaysia, Quarterly Bulletin 2Q 2023, “The global automotive industry was estimated to have lost USD 60 BILLION in 2021 due to shortages of semiconductor chips”.

The consumer electronics industry may also face challenges in meeting demand for popular products such as smartphones and laptops, as the shortage of chips makes it difficult to produce these devices in sufficient quantities. This could lead to product shortages and higher prices for consumers.

AMD and Qualcomm, which sell chips to most of the top electronics firms, have noted the shortage in recent weeks. Sony blamed the chip shortage for why it’s so hard to get a PlayStation 5 game console.

In the telecommunications industry, the shortage of chips could delay the rollout of 5G networks and hinder the development of new technologies. As stated in Quarterly Bulletin 2Q 2023 Bank Negara Malaysia, “Due to 5G technology, the latest phones will require 40% more electrical components compared to previous versions.” 

Overall, the global chip shortage is likely to have a significant impact on various industries in 2023 and could potentially result in economic and technological disruptions. 

Companies and governments must take measures early to address the shortage to avoid further negative impacts to their businesses and must be proactive in managing these risks in order to maintain their competitiveness and profitability in the long term.

Below are some of the risks the global chip shortage poses to technology-dependent companies in 2023:

1. Reduced production and sales: The shortage of chips is causing delays in the production of technology products, which in turn is leading to reduced sales for technology-dependent companies. This can result in lower profits and reduced revenue.
2. Increased costs: Companies are having to pay higher prices for the limited supply of chips, which is leading to increased costs for technology-dependent companies. This can result in reduced profitability and reduced competitiveness.
3. Supply chain disruptions: The shortage of chips is causing disruptions in the supply chain, making it difficult for technology-dependent companies to obtain the raw materials and components they need to produce their products. This can result in reduced efficiency and increased costs.
4. Competition for scarce resources: Technology-dependent companies are having to compete with each other for the limited supply of chips, which can result in higher prices, reduced competitiveness, and reduced market share.
5. Reduced market share: Companies that are unable to secure enough chips to meet demand may lose market share to competitors who are able to produce and sell products. This can result in reduced competitiveness and reduced profits.
6. Reputation damage: Companies that are unable to meet customer demand due to the shortage of chips may damage their reputation with customers, which can result in reduced customer loyalty and reduced future sales.

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The cost of the global chip shortage varies depending on the company and the industry. However, it is estimated to be in the billions of dollars.

For example, the automotive industry is expected to lose billions of dollars in revenue due to production slowdowns and shutdowns caused by the shortage of chips. Automakers may also incur additional costs for things like airfreight, expedited shipping, and increased inventory carrying costs.

According to a report by the International Data Corporation (IDC), the global chip shortage is expected to reduce production levels in the automotive and consumer electronics industries by 20-30% in the first half of 2021.

In the consumer electronics industry, the shortage of chips could lead to higher production costs for companies, as they compete for limited supplies of chips and potentially pay premium prices to secure the components they need. This increase in production costs could be passed on to consumers in the form of higher prices for electronic devices.

The same report by IDC estimates that the shortage will increase the costs for the automotive and consumer electronics industries by 10-15% in the first half of 2021.

The telecommunications industry may also face higher costs as a result of the shortage, as they work to secure the chips they need to build and upgrade their networks. As stated in Quarterly Bulletin 2Q 2023 Bank Negara Malaysia, “Due to 5G technology, the latest phones will require 40% more electrical components compared to previous versions.” 

A study by the Consumer Technology Association (CTA) found that technology companies are expected to spend an additional $37 billion on chips in 2021 due to the shortage.

It’s difficult to estimate the exact cost of the global chip shortage to companies, as it depends on a range of factors, including the industry, the specific company, and the duration of the shortage. However, it’s clear that the shortage is having a significant financial impact on companies across multiple industries.

According to a report by the Information Technology & Innovation Foundation (ITIF), the global chip shortage is estimated to result in losses of tens of billions of dollars for the technology and automotive industries in the first half of 2021.

Other than financial impact, the the global chip shortage has had significant impacts on various industries in various other ways including:

1. Automotive industry: The shortage of chips has caused delays in vehicle production and has resulted in car manufacturers having to temporarily shut down factories. This has resulted in reduced production levels, increased costs, and reduced profits for the automotive industry.
2. Consumer electronics: The shortage of chips has impacted the production of popular consumer electronics such as smartphones, laptops, and gaming consoles, causing delays in product launches and making it difficult for consumers to purchase these products.
3. Supply chain disruption: The shortage of chips has disrupted the entire supply chain, causing delays in the delivery of raw materials and finished products. This has resulted in increased costs and reduced efficiency for businesses across a wide range of industries.
4. Price increases: The shortage of chips has led to increased prices for a range of products, as companies try to offset the increased costs associated with the shortage.
5. Reduced economic growth: The global chip shortage is having a negative impact on the global economy, as reduced production levels, increased costs, and supply chain disruptions result in reduced economic growth.

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There are several strategies that companies can implement to mitigate the risk of the global chip shortage in their supply chain:

1. Diversifying suppliers: Companies can reduce their dependence on a single supplier by diversifying their supplier base and working with multiple suppliers to secure the components they need.
2. Building inventory buffers: Companies can build up their inventory levels to ensure that they have a sufficient supply of components in the event of a shortage. This can be especially important for critical components that are essential for production. Or they could partner with a company that already has extra stores of core components.
3. Plan and order earlier – Now more than ever, it is important for companies to plan in advance and make purchase orders earlier to secure components as lead times can jump unpredictable in such turbulent markets.
4. Investing in alternative technologies: For the long term, companies can invest in alternative technologies and components that may not be affected by the current shortage, to reduce their dependence on scarce components.
5. Managing demand: Companies can also manage demand for their products to ensure that they are not overburdening their supply chain and exacerbating the effects of the shortage.
6. Increasing production capacity: Companies can work with their suppliers to increase production capacity for critical components, to ensure that they have a reliable supply of components even in the event of a shortage.

These strategies can help companies mitigate the risks of the global chip shortage and ensure that their supply chain remains resilient in the face of this challenge. It’s important for companies to take a proactive and flexible approach to managing their supply chain, as the chip shortage is likely to continue to impact the global economy for some time.