Economics, at its core, has one basic principle: supply and demand. So what happens when supply can’t keep up? Well, prices go up — which is also known as inflation…
Sound familiar? We’ve been talking about inflation for a while.
That’s exactly what we’re seeing with the semiconductor chip shortage of 2021, and it looks like it’s only going to get worse. But that’s not stopping some companies…
Nvidia Corp. (Nasdaq: NVDA) was the topic of the day Friday morning as the crypto world’s favorite chip manufacturer announced a 4-for-1 stock split, sending shares up about 3% for the day.
The company saw incredible growth during the pandemic — gross profit and revenue rose 61% year over year. And we don’t think it’s done rising…
After acquiring Arm in September 2020, NVDA released a data center central processing unit (CPU). This release puts it in direct competition with some of the biggest companies in the industry.
But will the semiconductor chip shortage allow it to keep up?
The shortage began building at the same time NVDA found the perfect conditions for its huge expansion…
The COVID-19 pandemic.
When the world shut down, there was a huge shift in the workforce as people went from full-time office workers to working from home at least part time.
This shift spiked a need for devices, and devices require chips — leading to increased demand.
But then the supply chain gets interrupted… As people moved to work from home, manufacturers were forced to shut down for at least a month or two…
It’s hard to build a computer chip from your house — which means decreased supply… And now we’re reopening, and that pent-up demand is breaking free.
From the chart above, for the first time ever, retail sales have exceeded inventory…
Now the semiconductor chip shortage in 2021 has an excess in sales coupled with an excessive wait time.
And this difference between demand and supply is happening with 16 million people still unemployed — meaning it’s not going to get easier.
And as if the supply chain issue in this semiconductor chip shortage wasn’t bad enough… Taiwan is in a drought.
You’re probably wondering what that has to do with computer chips. Well, chipmaking is a highly water-intensive process — an integrated circuit on a 30-centimeter wafer uses 2,200 gallons of water.
And the reason Taiwan’s drought in particular matters is because it is the second largest producer in the world in terms of capacity — especially Taiwan Semiconductor Manufacturing (NYSE: TSM).
So if its production slows… We could be in trouble. And that is only looking at all chips.
Taiwan is also the leading producer of logic chips, as opposed to simple memory chips, by a significant margin.
In short, Taiwanese production is essential if we’re going to navigate this semiconductor chip shortage in 2021… And that could be a problem.
Baoshan No. 2 Reservoir in Hsinchu, Source: BBC
Normally, Taiwan is one of the rainiest countries in the world. Its water reserves largely come from seasonal typhoons… But last year, it didn’t get one at all.
BBC cites this drought as the worst in 56 years, noting that many of its reservoirs are below 20% capacity… Some, such as Baoshan No. 2 pictured above, are slipping below 10%.
This is going to get worse before it gets better, and the semiconductor chip shortage of 2021 is something to keep an eye on. It impacts a lot of industries.
But there is one chip company we’re keeping an eye on that you could find out about in our Disruptor Digest service…
Until next time,
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