“Penny Chips” Stalling Global Supply Chain. Price Increases Expected.

Sometimes it’s the smallest things that have the largest impact. This is the story of the supply chain woes still being felt in the runup to the 2022 holiday season, with one of the largest struggles being the crippling supply of low-end legacy chips, sometimes known colloquially as “penny chips”.

These chips can cost anywhere from 50 cents to $10, but assurance of the availability of such chips is one of the foundations of the semiconductor industry, which is now valued at over $600 billion globally. In a recent article from Bloomberg, C.C. Wei, chief executive officer of Taiwan Semiconductor Manufacturing Company, did not sugarcoat the situation, citing numerous industries including automotive, aviation, and healthcare all experiencing costly standstills due to his company’s inability to meet demand. Wei cited shortages in silicon against industries increasing the use of silicon-based chips (the automotive industry has increased 15% annually, while smartphones now use up to three times as many silicon-based power management chips than they did five years ago). One 50 cent chip, in fact, is important enough to stall the completion of a $50,000 vehicle.

Even more concerning, said Wang, is the efforts to expand production capacities — such as the opening of a new 28-nanometer factory in China — will lead to increased prices. Compounded with inflation, costs will be expected to rise even further. “The age of an efficient, globalized supply system has passed,” he said. “Costs are swiftly rising, including inflation.”

Even as the U.S. rushes to mobilize its own chip production capabilities, most analysts agree that relief in the short term will be hard to come by. According to Intel CEO Pat Gelsinger, the chip shortages should continue until at least 2024. In this environment, large-scale purchasing solutions will need to be considered for more than just end-of-life components and semiconductors. Any critical component that could stall production must be accounted for through last time buy and long-term storage strategies and solutions that will guarantee business continuity at least until the crisis stabilizes.