It is said that the components of a smartphone travel around 500,000km before reaching your hands, with hundreds of companies participating in the production of every little piece. Some of the components can be easily replaced while others are essential.
Smartphones need semiconductors
Slightly technical: A smartphone has around 500 billion transistors and over 70 elements of the periodic table. Transistors are connected to become microchips and the materials used to link them together are called semiconductors. Semiconductors allow for a better control of electricity conduction than both pure conductors (e.g. gold, silver, copper) and insulators (e.g. rubber, glass). This is what makes semiconductors so desirable to build the microchips that go into smartphones. The most common element to create semiconductors is silicon.
Besides smartphones, semiconductors are everywhere! From TVs and laptops, to medical equipment, to automobiles, most technology devices need some type of semiconductor. For example, according to IHS, electronics represent 40% of total cost of a car. We can estimate that a similar percentage makes up the cost of Apple products, just by looking broadly at Apple’s financials. This shows the huge importance of semiconductors in our everyday life.
Semiconductor crisis
As technology evolves, the demand for semiconductors increases. It is forecasted that it will continue to do so until 2025. Semiconductor companies around the world have kind of kept up with demand until Covid-19 arrived. As the pandemic hit the world, it created multiple issues in supply chains and inventory planning. We began seeing imbalances in the semiconductor market, driven by factory closures and order suspensions.
To worsen the imbalance in the market, we saw car manufacturers developing tech-heavy electric vehicles, a boom in sales of TVs and computers and the launch of new games consoles and 5G-enabled mobile phones, all this fuelling global demand for semiconductors. The shortage has become so severe that multiple car manufactures were forced to halt production. Also, Samsung is rumoured (unconfirmed) to have suspended the production of Samsung Galaxy S21 FE due to the lack of microchips availability.
Apart from price increases coming from the semiconductor crisis, there are other factors that might put upward pressure on smartphone prices. We currently see broad-based inflation in many countries, which may increase other input costs and wages. This will have to be factored in the price end-consumers pay.
Smartphone (and other devices) users need to be aware that until new technology is developed and replaces semiconductors, companies worldwide will keep being highly impacted by the availability of semiconductors.
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