Another chip shortage

The sprawling $280 billion CHIPS and Science Act is finally here, with applications for funding opening on Feb. 28. U.S. president Joe Biden has already claimed the Act as one of his signature achievements, giving it prime place in his recent State of the Union last month. And it’s not just Washington throwing money at semiconductors: The European Union, Japan and India are also launching their own semiconductor subsidy programs.

So now that governments are pledging hundreds of billions of dollars to shore up their chip supply chains, will we see another chip shortage in the future?

The unfortunate answer is: Yes, we will.

Chip shortages result from a mismatch between supply and demand that cannot be addressed quickly either by chip manufacturers by scaling up production or by markets by adapting to the chip production profile. The challenge of resolving the two isn’t going away—and may even grow in size.

Semiconductor demand is unpredictable. The consensus is that future chip demand will be driven by A.I., electric and autonomous vehicles, the Internet of Things, and 5G/6G. Yet the exact nature, speed and magnitude of that increase in demand is still unknown.

We can’t predict what kind of A.I. will dominate in the next few years. The development of autonomous vehicles is slower than predicted. 5G deployment rates are greatly affected by geopolitics—and the future of 6G is even murkier. Entirely new product segments could emerge: See Bitcoin mining, which no one could have predicted being a significant driver of semiconductor demand. 

This uncertainty makes demand planning hard for chips of different types—logic vs. memory, digital vs. analog, high voltage vs. low power, and so on—and raises the specter of a shortage.