How long will the chip shortage last? What does it effect?

Why is there a chip shortage?

By Chris Baraniuk
Technology of Business reporter

Published

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Employees work on the production line of silicon wafer at a factory of GalaxyCore Inc. on May 25, 2021 in Jiashan County, Jiaxing City, Zhejiang Province of ChinaIMAGE SOURCEGETTY IMAGES
image captionComputer chips plants are working flat out

The tech industry is at a crunch point.

Today, millions of products – cars, washing machines, smartphones, and more – rely on computer chips, also known as semiconductors.

And right now, there just aren’t enough of them to meet industry demand. As a result, many popular products are in short supply.

It has become almost impossible to buy a PS5 games console. Toyota, Ford and Volvo have had to either slow or temporarily halt production at their factories. Smartphone makers are feeling the pinch too, with Apple warning that the shortage could affect iPhone sales.

Even companies that wouldn’t necessarily be associated with computer chips haven’t been spared, such as CSSI international, a US firm that makes dog-grooming machines, is feeling the effects.

Some shoppers have already noticed these problems. Sales of used-cars are up, for instance, because new vehicles, often packed with thousands of individual chips, are in short supply.

Kris Halpin, a musician based in North Warwickshire, is one of many who have experienced disappointment. Mr Halpin has cerebral palsy and leases a car through the Motability scheme.

Kris Halpin, a musician based in North WarwickshireIMAGE SOURCEJOSEFA TORRES
image captionThe chip shortage has delayed a new car for musician Kris Halpin

His current lease ends in October and under the rules of the scheme he must replace his car at that time. However, his local dealership has told him that the car he ordered has been delayed until January next year at the earliest.

“As a disabled person I am really, really reliant on my car,” says Mr Halpin, who uses a wheelchair. “Where I live, I literally couldn’t get beyond my drive without my car.”

Thankfully, Mr Halpin says that Motability agreed to extend the lease and insurance on his current car until the new one arrives.

In the coming months and, particularly over Christmas, it’s possible that even more products will fall foul of the shortage.

So, what is going on?

The chips that are in short supply perform various functions in modern products, and there are often more than one in a single device.

Piotr Esden-Tempski is the founder and owner of 1bitsquared, a US-based firm that specialises in electronics hardware. He has orders on his books for several thousand electronics interface boards, which allow students and makers to connect various appliances to their computers.

1bitsquared electronics boardIMAGE SOURCE1BITSQUARED AND PIOTRESDEN-TEMPSKI
image captionCompanies like 1bitsquared face a 12-month wait for some components

But Mr Esden-Tempski’s suppliers say that some of the components he needs containing semiconductors will not be available for 12 months or more.

“You cannot just assemble it and miss one part, it won’t work,” he says.

This situation has been developing for years, not just months.

Koray Köse, an analyst at Gartner, says that among the pressures facing the chip industry prior to the pandemic were the rise of 5G, which increased demand, and the decision by the US to prevent the sale of semiconductors and other technology to Huawei. Chip makers outside the US were quickly flooded with orders from the Chinese firm.

Other, less obvious, manufacturing complexities have also hampered the supply of certain components.

For example, there are two main approaches to chip production right now: using 200mm or 300mm wafers. This refers to the diameter of the circular silicon wafer that gets split into lots of tiny chips.

The larger wafers are more expensive and are often used for more advanced devices.

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Presentational grey line

But there’s been a boom in demand for lower cost chips, which are embedded in an ever-wider variety of consumer products, meaning the older, 200mm technology is more sought after than ever.

Industry news site Semiconductor Engineering highlighted the risk of a chip shortage, partly due to a lack of 200mm manufacturing equipment, back in February 2020.

As the pandemic unfolded, early signs of fluctuating demand led to stockpiling and advance ordering of chips by some tech firms, which left others struggling to acquire the components.

People working from home have needed laptops, tablets and webcams to help them do their jobs, and chip factories did close during lockdowns.

At times consumers have struggled to buy the devices they want, though manufacturers have so far been able to catch up with demand eventually.

Mr Köse says, however, that the pandemic was not the sole cause of the chip shortage: “That was probably just the last drop in the bucket.”

Trucks wait in traffic in Austin, Texas delayed by winter storm UriIMAGE SOURCEGETTY IMAGES
image captionA winter storm in Texas shutdown semiconductor factories

More recently, bad luck has exacerbated the problem. An atrocious winter storm in Texas shutdown semiconductor factories, and a fire at a plant in Japan caused similar delays.

Logistical headaches are compounding the situation. Oliver Chapman, chief executive of OCI, a global supply chain partner, says that for many years the cost of shipping was not of great concern for many tech firms because their products are relatively small, and suppliers could fit lots of them inside a single 40ft container.

But the cost of moving shipping containers around the world has ballooned because of sudden shifts in demand during the pandemic. It is accompanied by a rise in air freight fees and the lorry driver shortage in Europe.

Sending a single 40ft container from Asia to Europe currently costs $17,000 (£12,480), says George Griffiths, editor of global container markets at S&P Global Platts.

That’s a greater than ten-fold increase compared to a year ago, when it cost around $1,500 (£1,101).

Chip makers are responding to sustained demand by increasing capacity but that takes time, says Mr Köse, not least because semiconductor factories cost billions of dollars to build. “That is not going to be solved by this Christmas and I find it hard to believe it will be solved by the next Black Friday [November 2022],” he says.

Containers at Qingdao port, chinaIMAGE SOURCEGETTY IMAGES
image captionShipping costs ballooned during the pandemic

Bosses at the tech giants appear sharply aware of this. The chief executives of Intel and IBM have both said recently that the chip shortage could last two years.

Seda Memik, professor of electrical and computer engineering, and computer science, at Northwestern University, agrees: “It will take multiple years to accomplish… a better balance.” She also says that the pace of demand for chips has been rising so strongly that a shortage was, at some point, “inevitable”.

Establishing new chip factories is difficult to do quickly, she adds: “It’s extremely expensive and requires a well-trained workforce.” It’s a potential spanner in the works for those who advocate “re-shoring” – relocating chip fabrication to a wider variety of countries, including those in the West, in order to ease the pressure on global supply chains.

Employees work on the production line of silicon wafer at a factory of GalaxyCore Inc. on May 25, 2021 in Jiashan County, Jiaxing City, Zhejiang Province of China.IMAGE SOURCEGETTY IMAGES
image captionMaking high-end computer chips is extremely difficult

Mr Chapman isn’t convinced that the market is up for grabs. He argues that Asia-based chip makers, such as those in Taiwan, China and South Korea, are already racing to meet demand, and will likely continue to dominate in the future.

Mr Köse says that consumers aren’t likely to notice price rises or widespread shortages of tech products this Christmas. Certain in-demand devices, such as games consoles, could become hard to get, with customers having to wait a few months for the item they want. However, he doesn’t expect interminable delays.

The bottom line is: the pandemic accelerated an already precarious situation for chip makers – we’re in the middle of a tech boom, supply can’t quite keep up – and it won’t get sorted out overnight.

It means that all sorts of people, including those seeking a new car like Mr Halpin, could continue to experience delays and disappointment for months to come.

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30 of the Largest Private Jet Companies

 

FlyExclusive, Solairus, Airshare, Nicholas Air gain on Top 135/91K operators list

 

NetJets, Flexjet, Wheels Up, Vista Global, and Jet Linx continue at the top of the leaderboard as FlyExclusive jumps from #8 to #5

 

Analyzing the latest data from Argus TraqPak from the first six months of 2021, there is no change in ranking the four largest private jet providers.

NetJets remains in the top spot, following by Directional Aviation’s Flexjet, Wheels Up, and operators in which Vista Global holds a minority stake – XOJET, Red Wing, and Talon Air.

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Fast-growing FlyExclusive, including its Gulfstream operator Sky Night, jumps from the 8th spot on our final 2020 list to the 5th spot. Jet Linx moves from 5th to 6th. PlaneSense drops from 6th to 7th. Solairus moves from 10th to 9th. Jet Edge, with Jet Select flight hours, moves from 9th to 8th, the ranking previously held by Mountain Aviation, now part of Wheels Up Experience. Airshare breaks into the top 10.

Top Private Jet Operators (Jan. to June 2021)

Rank Provider Flight Hours % Share 91K/
135 share **
(Charter/Fractional)
% Share All Flights
(w/Part 91)
1 NetJets, Inc.* 242,918 19.77% 10.75%
2 Flexjet (Directional) 86,764 7.06% 3.84%
3 Wheels Up Experience Inc 81,409 6.63% 3.60%
4 Vista Global Holding* 40,685 3.31% 1.80%
5 Fly Exclusive* 21,822 1.78% 0.97%
6 Jet Linx 20,741 1.69% 0.92%
7 PlaneSense 19,407 1.58% 0.86%
8 Jet Edge* 18,440 1.50% 0.82%
9 Solairus Aviation 16,763 1.36% 0.74%
10 Airshare 9,319 0.76% 0.41%
11 Clay Lacy 7,591 0.62% 0.34%
12 Nicholas Air 7,569 0.62% 0.33%
13 Corporate Flight Management 6,263 0.51% 0.28%
14 AirSprint 5,858 0.48% 0.26%
15 Thrive Aviation 5,787 0.47% 0.26%
16 Aero Air 5,703 0.46% 0.25%
17 Worldwide Jet Charter 5,662 0.46% 0.25%
18 Jet Access 5,127 0.42% 0.23%
19 Wing Aviation (Alliance Aviation) 5,025 0.41% 0.22%
20 Superior Transportation Associates 4,971 0.40% 0.22%
21 Jet Aviation 4,944 0.40% 0.22%
22 Jet It 4,593 0.37% 0.20%
23 Advanced Air 4,485 0.36% 0.20%
24 Scott Aviation 4,468 0.36% 0.20%
25 GrandView Aviation 4,426 0.36% 0.20%
26 Pacific Coast Jet 4,369 0.36% 0.19%
27 SC Aviation 4,349 0.35% 0.19%
28 Hop-A-Jet 4,254 0.35% 0.19%
29 Northern Jet Management 2,703 0.22% 0.12%
30 West Coast Charters 2,193 0.18% 0.10%
Notes: * NetJets, Inc. flight hours includes NetJets and Executive Jet Management; Vista Global Holding includes XOJET Aviation, Red Wing Aviation, and Talon Air. As a foreign-based company, Vista Global can only hold minority stakes in U.S. operators. Fly Exclusives includes Sky Night Aviation; Jet Edge includes Jet Select. ** See methodology below.

Leading up the next 10 largest operators are Clay Lacy Aviation (11th) and Nicholas Air, (12th) both of which offer jet card programs.

Other jet card providers in the top 30 include Wing Aviation (19th), the operator arm of jet card seller Alliance Aviation, GrandView Aviation (25th), and Northern Jet Management (29th).

AirSprint (14th) and Jet It (22nd) both sell fractional ownership shares and leases.

Many charter operators focus on local customers and wholesale to brokers and other operators for their charter and jet card programs.

Business aviation consolidation

There has been a seemingly endless string of acquisitions and mergers. How has consolidation impacted the industry?

So far in 2021, the 10 largest operators account for 45.4% of Part 135/91K flight hours, up from 44.3% at the end of 2020. Looking at the overall industry, the top 10 flew 24.7% of flight Part 135/91K hours in North America as tracked by Argus compared to 23.2% for 2020.

Looking at the 30 largest operators of fractional and charter aircraft, together they account for just 53.6% of Part 135/91K flight hours and 29.4% of total North American private aviation flight hours.

Biggest Private Jet Companies – Methodology

A note about the numbers: The Private Jet Card Comparisons’ rankings combine Argus’ reporting of both Part 135 and Part 91K flight hours. While Part 135 represents charter flights and 91K is those of fractional operators, we believe viewing them together provides the most accurate picture of the industry landscape.

That’s because Argus creates its separate 135 and 91K lists, which we report on annually, based on which category the majority of the operator’s flights fall into. In other words, the list of Part 91K fractional operators includes a significant number of Part 135 flying.

For example, providers on the fractional list also sell jet cards (a form of charter) and operate Part 135 flights. Specifically, during the first six months of 2021, NetJets racked up 216,537 hours, not including Executive Jet Management, its management arm that is counted in the Part 135 data. NetJets has previously said about 20% of the flying on its fractional fleet is for jet cards, or Part 135. That infers over 43,000 Part 135 hours, which would make it the second-largest operator of Part 135 flight hours.

By combining the flight hours of Part 91K fractional operators and those of the 135 operators, we believe this gives you a clear picture of all flight hours for private aviation users who don’t own an entire aircraft operated for non–commercial use, which is Part 91 flying.

By then adding in Part 91 flight hours, you can see what percentage of total North American private aviation flight hours each provider accounts for under their Part 135/91K operations.

(Updated Aug. 4, 2021 – An earlier version of this story omitted Sky Night flight hours from FlyExclusive, moving it from 6th to 5th. Jet Select flight hours were also omitted from Jet Edge totals. The revised flight hours move Jet Edge from 9th to 8th. Jet Linx moves from 5th to 6th. Solairus Aviation moves from 8th to 9th. We also updated share numbers for providers and for the top 10 and 30 operators.)

 

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