Hire more fry cooks... Chip demand is extra hot right now. Ford literally had to shut down a plant this week because it can't find enough computer chips for its cars. Semiconductors are the backbone of electronics, powering everything from your smartphone to your washing mashing. Only problem? We've got a global semiconductor shortage on our hands.
- All the WFH'ing... ate up all the chips. From Chromebooks, to PlayStations, to cloud computing everything — our pandemic needs called for a lot of semi-conducting.
- That new car for the 'burbs... helped US car sales rebound quicker than expected. Ford isn't the only one who's chip-hungry: the average car contains 50 to 150 chips.
- All those headlines about 5G... hyped up demand for 5G smartphones, which (spoiler) pumped up demand for 5G chips.
Why so cyclical?... The semiconductor industry is driven by innovation cycles. In order to survive, companies have to constantly churn out new products as they race for the fanciest chip. By the time they've scaled production of the hottest new chip, there's a hotter new chip on the market... and then they have overstock. Meanwhile: chip size has shrunk to less than a nail clipping, while the costs of production have surged.
The industry is consolidating to prep for the next lull... between chip innovations. Chip companies are merging to cut costs, scale faster, and stay profitable (#synergy). In September, Nvidia said it was buying chip designer Arm for a whopping $40B. Then in October, AMD agreed to buy chip maker Xilinx for $35B. And Qualcomm just announced a $1.4B acquisition of a 5G chip startup. In this super high-volume, high-tech industry... you need to stay huge to stay competitive.