Why the Gaming Chip Shortage in the Gaming Industry is not Game Over

The global chip shortage has taken the gaming industry by storm, as it is one of the biggest industries most affected, and the resupply of consoles can last until 2023. However, it's not game over. There are solutions to restore not only the gaming industry but all industries to regular supply.

Gaming has been one of the fastest-growing forms of leisure this year. More than three billion people are now playing video games in 2021.

The growing popularity of video games and the shortage of gaming consoles have created a stream of events involving dissatisfied customers and panicked companies. Even so, the gaming industry is not the only one facing this dilemma, as it is happening to all companies and communities around the globe.

The Global Chip Shortage

It's no secret that there's been a shortage of everything from electronics to even non-electronic items. That's because there aren't enough semiconductor chips.

Semiconductors, also known as microchips, are what make today's electronics so sophisticated. They are the heart of most of our products, from cars, smart devices, and everything in between.

These chips have affected more than 169 industries, sparking universal panic to satisfy the rising demand with low supply. As a result, there are notable shortages and queues among consumers. And make up the term we know today as the global chip shortage.

What Caused The Global Chip Shortage?

With the release of the new generation of consoles, consumers have been scrambling to buy them as they have been out of stock worldwide. And as COVID-19 forced people to depend on electronics and find new forms of entertainment, demand for electronics has soared.

As more people worked from home and indulged in virtual classes, consumers needed more electronic supplies like computers, offices, TVs, phones, and more. Along with the unemployment benefits and stimulus checks, consumers had the money to buy these items but not the suppliers to offer them. Chip factories that make the world's chips were overwhelmed by orders from companies that make those devices, leaving them short on supplies.

The fluctuations of the supply chain have been ongoing and are known as the bullwhip effect. It is an economic phenomenon in which shifts in demand along the chain affect inventory. Although this is a recurring cycle, the pandemic has taken it to extreme levels, where the supply chain has ended with excessive demand and scarce supply.

What Does This Mean For The Gaming Industry?

In 2021, gaming spending reached unprecedented levels, indicating increasing interest from consumers. According to video game market researcher NPD Group, total video games spending in the second quarter of 2021 reached $14 billion and $13.3 billion in the third quarter, making it the highest third-quarter spend in history.

The recent statistics on the new generation of consoles support this as the PS5 has sold over 13 million consoles globally and an estimate of 8 million Xbox consoles have been sold by October this year.

Don’t let the statistics fool you

Despite the millions of consoles sold this year, the shortages have hit the gaming industry the hardest. Game consoles have been almost near impossible to find. Even with PlayStation frequently updating on the availability of the PS5 or restocks on the latest Xbox Series X, they usually sell out within seconds as everyone in the game community hunts for these consoles.

According to Bloomberg, Sony's CEO, Hiroki Totoki, said it's difficult for Sony to keep up with demand for the PS5 and expects the situation to continue into 2022. Totoki says the market for the PlayStation 5 is not slowing down this year. Even if Sony secures more devices and produces more PlayStation 5 units next year, its supply would not meet demand.

Nintendo sold 89.04 million Switches, with the OLED model selling more than 130,000 units in its first three days in Japan. Even with these astronomical numbers, Nintendo is also having problems keeping pace with the demand. The Nintendo President, Shuntaro Furukawa, admits the company can't produce as many Switch consoles as it wants due to the global chip shortage.

Amidst the shortage of consoles, graphics cards have seen a bigger hit. In Q2 2021, Jon Peddie Research estimates the global GPU market reached over 123 million units, and PC CPU shipments increased by 42% year-over-year. However, finding these units on the market has been undeniably hard for consumers. Colette Kress, CFO of NVIDIA, says, "Our overall capacity has not been able to keep up with that overall strong demand that we have seen... But again, we remain focused on this and working each day to improve our overall supply situation."

Lower supply, higher prices

In addition to the damage caused by the limited supply, the prices of consoles and graphics cards have skyrocketed to the point where some products are not obtainable. "Prices are definitely going to be higher for a lot of devices that require a semiconductor," says David Yoffie, Professor at Harvard Business School and author of numerous publications on strategy and technology. "Some products are literally not going to ship, or they are going to be delayed."

“Game console-makers are among the customers making the strongest demands, and I’m sincerely sorry for their frustration as none of them have a 100% satisfaction.”

Toshiba director Takeshi Kamebuchi told Bloomberg that some Toshiba customers will not serve all chips they need until 2023.

The Underlying Problems

Natural disasters have plagued semiconductor facilities around the world. Japan, one of the worst affected, had a plant damaged by fire and an earthquake. Winter storms in Texas forced chip factories to close, and the drought in Taiwan has stunted chips production.

Boston Consulting Group analysis shows that U.S. control of global chip manufacturing fell from 37 percent in 1990 to 12 percent in 2019. Compare this with Taiwan Semiconductor Manufacturing Co., which produces 92 percent of the world's most advanced chips. Today, Taiwan, South Korea, China, and Japan have the most effective semiconductor industries, making nearly all chip production in Asia. To be precise, 75 percent of semiconductors come from Asian countries.

One chip requires more than 1,000 steps of manufacturing and crosses international borders over 70 times before reaching a consumer. Given the high dependence on these selected factories, it was inevitable that this shortage would occur and have drastic effects on all industries that depend on them. The COVID-19 pandemic made this process escalate quicker as factories panicked and shut down their factories while consumer demand increased to remarkable levels. And even as factories opened again, the supply chain was overwhelmed by the backlog of orders and could not cope with the accumulation that caused labor shortages.

How To Overcome The Chip Global Shortage

Overcoming this global chip shortage won't be easy, but it'll be worth it in the long run and will probably eliminate any chance of it happening again.

U.S. Interference

One of the more obvious ways to overcome it would be to build more factories, particularly in the U.S. Although this can help with factory dependency, there are precise methods to achieve this.

TSMC and Samsung are already moving equipment to their new factories in Arizona and Texas. Intel has invested $23.5 billion to boost semiconductor funding in America. Intel Foundry Services (IFS) will also enable Intel to serve customers globally and become a leading provider of foundry capacity in the U.S. and Europe.

But plans to increase production in these factories will take years, along with more funding from the U.S.

Steps that the U.S. can take to overcome the shortage

Abu Asaduzzaman, associate professor of computer engineering, stated that the number of semiconductor manufacturing foundries in the U.S. is inadequate. He suggests it would be good if we helped companies build factories here from abroad, but we do not want to send all our technology production overseas and then have no control.

Asaduzzaman believes the U.S. should consider long-term solutions, given that the country invented chip technology. He suggests that the U.S. can regain its lead in chip technology by offering advanced courses to equip students to develop new chip design techniques, optimize and streamline chip applications, and increase awareness around chip needs.

Terry Halvorson, IBM's general manager for IBM's Federal Market organization, supports Asaduzzaman's point of view. He argues that securing the supply chain of microelectronics in the U.S. and our allies is ultimately the only way to maintain long-term capabilities in this area.

The fastest solution is to source pre-owned or refurbished equipment, believes Steven Zhou, co-founder, and CEO of Moov, a data-driven marketplace for used manufacturing equipment.

He says it can improve supply chains that have contributed to global shortages and help U.S. chip makers expand capacity while mitigating the risk of supply shortages. High-tech manufacturing can also drive environmental sustainability by circulating machines retired by their first owners.

"As an industry, we can help to add transparency and legitimacy to this supply chain strategy by formally measuring and monitoring the global secondary market for semiconductor manufacturing equipment."

Zhou concludes in his Forbes article.

Given the U.S. has about 227 million video gamers and is one of the top 10 gaming markets today, factories in the U.S. can release the dependence that the U.S. has on Asian factories. If the U.S. can supply chips like TSMC, it will further support the supply chain and relieve the burden of leading semiconductor factories.

Restructure of the Global Supply Chain

But as we know, this is not just about focusing on the U.S. The global supply chain needs to rethink its entire strategy in semiconductor production.

Asaduzzaman predicts that the demand for chip technologies will continue to rise in the next few years due to the rising demand for chips.

However, manufacturers will need to be careful going overboard in increasing supply. If they supply more than the demand, they could end up with leftover chips or have to drop prices. Although items sold at a lower cost will be advantageous to consumers, prolonged oversupply can cause a market surplus and be detrimental to companies. A market surplus can lead to insufficient funding to pay workers, suppliers produce less, and the inventory can soon become a stock that has no value.

As we are already in a shortage of markets, we know the harmful effects on industry and consumers. If chip suppliers do not plan their expansion carefully, they risk creating a semiconductor glut in the next few years, which leads to another shortage. Suppliers can help get the industry out of the chip shortage if they correctly estimate customer needs, refuse orders to prevent hoarding, and get chips to the people at the right time.

There needs to be a better system implemented to prevent both a market shortage and a market surplus from happening as much as possible.

When Will The Global Chip Shortage End?

The gaming industry has been dying to know when the global chip shortage for the industry will end. Estimates of when the global chip shortage for the gaming industry will end vary by company.

Sony and Xbox have reportedly confirmed that consoles will remain in short supply until 2022, while Intel CEO believes CPU and GPU shortages will last until 2023. Nikkei reported that Nintendo would produce 20% less than planned until the end of March 2022.

Regardless of when this is presumed to end, inflation and low supply will persist for some time. As much as we want the new generation of consoles, I think it is best to wait until the market balances out again so that all consumers can comfortably own one in their homes and not have their packages stolen.

Hopes for the Gaming Industry

The global chip shortage is a problem that is worsening for every industry by the second, and even if the solution does not come into force immediately, there is still a solution and steps that can benefit all parties involved. As the gaming industry has been most affected, I hope this has provided valuable information on the global chip shortage and the impact on our community as a whole. Just hang tight and keep your eyes peeled for deals until supply meets demand.