4 min read

Trump, Covid and Water Shortages – The Smart Phone Effect

Trump, Covid and Water Shortages – The Smart Phone Effect

If you’ve been thinking about investing in a new smartphone, car or washing machine this year then you’ve probably already discovered that many of the most popular models you might have been interested in have little or no availability.

The global pandemic, America’s war on China’s tech giants and extreme weather of biblical proportions in Southeast Asia have all contributed to a rollback on the production of microchip semiconductors, and that’s hit smart tech products hard.

Back in March Samsung, which has historically upgraded both its flagship Galaxy and Galaxy Note products on an annual basis, warned that it would likely postpone the Note upgrade as it attempts to get a grip on stock control issues triggered by the shortage.

Even Apple, whose decision to manufacture its own chips now looks like a masterclass in strategic R&D, hasn’t escaped the ripple effect of the microchip crisis, saying it will also likely scale back its product iteration over the course of 2021.

Samsung also makes its own chips, but unlike its main rival still depends extensively on third party suppliers like Qualcomm to meet demand.

But if we think the global mobile phone sector has it bad then the automotive industry is a whole different level of crisis, with manufacturers like Ford mothballing plants and warning investors of a $2.5 billion shortfall in operating profit over the year.

Relatively speaking, microchips are cheap as, well, chips to make and buy, but without them there’s no ‘smart’ anything.

They run everything from how you search Google on your phone, to the antilock braking system on your car, the delay timer on your washing machine, and that incessant beeping alarm when you leave the fridge door open for too long.

A perfect storm

So, just why is a world that’s in the grip of a global pandemic also struggling with a global microchip shortage? Part of the answer lies in the question.

The Covid-19 pandemic has created a seismic shift in the way people work. At the time it became clear that demand for chips was greatly outstripping supply the majority of people all around the world had spent a year working from home.

It was a year when a good proportion of us were trying to work in a way that our technology simply wasn’t up to. And so we all upgraded.

Demand for laptops and phones went through the roof, as did demand for the improved wifi and microchipped gadgets to help us binge watch Netflix, print documents, Bluetooth music and take part in Zoom quizzes.

That alone would have upshifted demand and created pressure on supply chains. But a pandemic alone wasn’t the end – or even the beginning – of it.

In 2019, former United States president Donald Trump declared war on Chinese tech giant Huawei amid allegations of industrial espionage – banning Huawei imports and, from September last year, effectively castrating the company’s global market by forbidding non-American suppliers to supply Huawei with technology that contained any components manufactured in the US.

It was a move that effectively declared a trade war on China itself, and the resulting American stranglehold on the influence of Chinese tech began to shrink Southeast Asian supply chains and shrivel logistics infrastructure.

Global lockdown, when it finally took hold, only served to accelerate the pain.

But 2020 wasn’t done yet.

Taiwan – a global epicentre of microchip production – then experienced its worst drought in more than 50 years leading to a dire shortage of the cleansing ultra-pure water needed to ensure microchips are free from the contaminants and toxins that can stop them working.

To understand the significance of that, the Taiwan Semiconductor Manufacturing Company (TSMC) makes around 11 million 12-inch equivalent microchip wafers a year.

To do that, its plants require 63,000 tonnes of water every single day – around 10 per cent of the supply of its two local reservoirs and water that, last year, simply wasn’t available.

The result? Superconductor production at a company valued by the New York Stock Exchange at $1.3 trillion pretty much collapsed.

What does all that mean to you?

Ultimately, what this really means are rising prices and extended delays that suppliers like Your Comms Group (YCG) can’t directly control.

This then translates into reduced product choice for our customers and, overall, an inferior customer experience.

That is especially true for our larger customers who have fleets of smart phones and require uniformity across their product range but are instead forced to adopt a ‘mix and match’ approach that is at best undesirable.

At YCG we do whatever we possibly can to ensure our customers have the best possible experience whenever they deal with us, but however high we set our own bar for standards and customer outcomes, there’s simply no avoiding the fact that we’re simply not able to offer the products range and lead times we’d like.

In reality, that squeezes our margins as we do what we can to shield our customers from the worst of those price hikes – and the products we are offering.

What does the future look like?

It’s hard to predict when the shortage will end, especially when no one really knows how long the pandemic will last. The current expectation is that production levels will return to normal by 2023, and possibly before the end of 2022.

But just as one door closes, another one usually opens and perhaps there’s an opportunity here for us to be smarter about being smart.

There’s no doubt we’ve entered a new era of scarcity, and it’s an era driven in part at least by changes in our natural world.

In a month when the leaders of what are considered to be the most advanced and modern economies gathered in Cornwall to pledge their commitment to greater environmental action, does this shortage offer the chance of a new dawn in tech production?

A technology age built on green principles, where recycling is an intrinsic part of the manufacturing process, and the global tech community becomes a key stakeholder in a more stable environmental future.

Surely there would be no shortage of champions for that vision of the future.

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