Global Microchip Shortage Worsens Appliance Delays, May Last Until 2022

Microchips don’t just run your smartphones, cars and computers. They help control appliances and are one of the reasons that refrigerator deliveries are holding up kitchen renovations across the country. 

Reuters reports that microchip shortages have delayed production during a time when demand for appliances is sky high, delaying product releases and backing up orders. According to the update, chip deliveries to Whirlpool fell short by about 10% in March and have impacted the company’s ability to meet the demand globally as they struggle “secure enough microcontrollers, simple processors that power over half of its products including microwaves, refrigerators, and washing machines.” 

"You put [together] a COVID-constrained supply chain, plus semiconductors, plus resins against a stronger consumer demand, and it's stress on the system. And what it ultimately translates into is that the backorders, unfortunately, will remain elevated for some time to come," Marc Robert Bitzer, chairman and CEO of Whirlpool Corp., said in the Q1 earnings call transcript. "Admittedly, it's very difficult to forecast it, but right now, we should assume that [the backlog of] Q2, Q3 will be on similarly elevated levels."

Bitzer noted that these challenges lead to significant cost-based price increases ranging from 5 to 12 percent. Yet, despite the rising costs, Bitzer expects demand to remain strong, saying that demand is a strong and multi-year trend spurred on by increased remodeling spending and remote work-related improvements.

Semiconductor shortage squeezes limited appliance stock

Seventy-five percent of semiconductor chips are manufactured in China, according to the Semiconductor Industry Association, and the country’s manufacturers are feeling the squeeze. “It’s a perfect storm,” said Jason Ai, president of Whirlpool Corp in China, on the sidelines of the Appliance and World Electronics Expo. “On the one hand we have to satisfy domestic demand for appliances, on the other hand we’re facing an explosion of export orders. As far as chips go, for those of us in China, it was inevitable.”

The pressure on manufacturers isn’t just coming from appliance demand. The Washington Post reports that chip manufacturers are prioritizing high-tech products such as computers and smartphones, and that “HP Inc., the computer company, forecasts that global demand for personal computers this year will be 45 percent higher than the company was expecting before the pandemic, leaving it struggling to buy enough chips.” This leaves little supply left for microwaves and dishwashers.

So what do microchips do in appliances?

Semiconductors, aka microchips, are made from pure elements like silicon or germanium, according to the Semiconductor Industry Association. Manufacturers can change the conductivity of the elements by adding impurities, which allows electricity to flow through so it can become the brain of the appliance.

“Due to their role in the fabrication of electronic devices, semiconductors are an important part of our lives. Imagine life without electronic devices,” The Semiconductor Industry Association says. “There would be no smartphones, radios, TVs, computers, video games, or advanced medical diagnostic equipment.”

All the way back at the turn of the century, microchips were already making their way into home appliances. 

“Consumers simply want more features on appliances,” Stephen Caldwell, now vice president of Microchip's Appliance Market Products Group in Chandler, Ariz, told EETImes in 2002. “That's requiring input and output features that didn't exist. In addition, there's a growing trend toward mechatronics and the need for improved connectivity as these appliances become increasingly smart and need to talk to each other.” 

Microchips allow appliances to have advanced functions such as connecting with other smart devices or smart home systems. But EETimes reported that they also can allow appliances to tasks that we take for granted, such as a reduced power consumption or time-telling functions. 

When will the microchip shortage end?

Buckle up for a long ride. The microchip shortage is expected to last until at least 2022, Pat Gelsinger, CEO of Intel, one of the largest chip makers in the U.S., told the Washington Post in April. He said that the company is ramping up production, but it will take six to nine months to see that extra supply. The issue is exacerbated by companies placing orders with multiple chip manufacturers as they’re unsure which can deliver fastest. 

Meanwhile, car manufacturers are slowing down production and the Biden Administration is proposing to spend $50 billion to subsidize semiconductor manufacturing facilities, which the Washington Post says has bipartisan support. However, leaders of other industries say that they do not want any single sector to get preferential treatment, while those in the microchip industry say the $50 billion in subsidies will not be enough. 

Bottom line? Don’t expect chip production to meet demand any time soon, so leave enough lead time to ensure appliances are delivered to homeowners on time to keep the renovation moving along.

Semiconductors aren't the only thing delaying projects and pushing up costs. Read about one of the many causes of the lumber shortage here.