The chip shortages currently being witnessed could be traced back to the onset of the COVID-19 pandemic and the consequent shutdown of factories. Although all commodities initially went through a demand drop, there was a snapback in demand for semiconductors so remarkably that the supply chains were struggling to keep up.
Last year, the semiconductor market witnessed an abrupt surge in demand for devices that keep people entertained and working remotely during the pandemic. This was followed by a rebound in demand for cars, mobile phones, systems, and electronics that use an increasing number of chips.
According to an estimate, nearly 75% of global semiconductor manufacturing capacity is located in four countries in Asia. With the COVID-19 outbreaks, suppliers were forced to temporarily shut down their facilities to prevent the spread of the virus, further reducing the overall semiconductor capacity and output. The resulting demand-supply mismatch causes an increase in lead times. In December 2021, it was noted that lead times for most conductors are running 40 weeks or more, with no waits shorter than 28 weeks.
The pricing has increased considerably alongside lead times. Wafers, substrates, assembly and testing, operational costs, and logistics have all become more expensive. For the supply chain to remain stabilized, the suppliers are being compelled to pass the costs on to the customers. This explains the 15% increase in the average price of a new car compared to 2020. The smartphone market, though at a slower rate, is also feeling the impact of chip shortages.
Ageing populations, the rise in chronic diseases, an increasing shortage of staff, and a significant rise in the number of patients have subjected healthcare providers to increasing pressure. The COVID-19 pandemic has not only worsened the situation by causing a surge in the number of patients but also exacerbating many health conditions.
Although the pandemic seems to have caused more damage, it results in the digital transformation of healthcare which helps ease the pressure and address the many challenges. There is advancement in virtual care and smart technologies which enable health providers to monitor and treat patients beyond hospital walls. This digital transformation largely depends on technologies and systems that need chips. Therefore, a situation where the chip shortage derails this transformation must be avoided.
The Need to Prioritize the Healthcare System
Chips are the brains powering modern technologies. They are essential components in vital medical equipment and systems that are important in diagnosing, monitoring, treating, and managing medical conditions which may or may not be life-threatening. The global shortage of chips threatens to disrupt the manufacturing of life-saving medical devices and systems. This, if not addressed, will have a lasting effect on healthcare and patients in all corners of the world.
The healthcare systems are currently dealing with huge patient backlogs caused by the pandemic. The much workload on them will only increase the demand for new medical equipment, which consequently requires more chips.
As the raw materials needed for chips continue to be limited in supply, there is a need to prioritize chip allocations to a level that enables the industry to meet the medical-device manufacturing demands.
Although the medical technology industry, representing just 1% of the total supply, is competing with others, such as automotive, smartphone, industrial, and consumer industries for a limited supply of critical semiconductors, there is a need to maintain a sustainable allocation of chips for life-saving medical devices and systems and continue to improve the delivery of care.
President Joe Biden, in an executive order issued in February, stated the need to prevent the supply chain crisis and the intention to bolster domestic manufacturing of semiconductors. Also, having recognized the impact of chip shortage on patients, the US government is in dialogue with the industry on prioritizing the medical technology sector. Likewise, the European Commission has issued a recommendation to Member States to address these shortages and engage with chip manufacturers to prioritize critical sectors such as healthcare.
There’s also a suggestion to curb the sort of panic buying and hoarding that have contributed to the shortage of chips.
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