Games maker Nintendo recently announced the global chip shortage is causing problems, hitting its hardware development after scaling back Switch sales estimates, unable to meet Christmas shopping demand.

With predictions ‘Chipageddon’ could extend into 2023 – longer than first predicted – it’s likely to squeeze many industries for some time to come.

Nintendo executive Ko Shiota, who heads the development team, told analysts it needs alternatives.

“We are looking at substituting components and tweaking designs to try and reduce the impact,” Shiota said.

It comes after a raft of tech outfits and other businesses say they’re struggling with chip shortages, although most have stopped short of reducing their sales targets.

Apple says it has recorded $8 billion (US$6 billion) in unmet demand, with that figure expected to be higher in the last quarter, while other gaming consoles Xbox and PlayStation are in short supply, and Toshiba has warned shortages could extend into 2023.

What’s causing the chip shortages?

With chips, or semiconductors, in many electronic devices, from phones and laptops right through to whitegoods and cars, any shortages or supply issues will be felt far and wide across devices – and the economy.

The automotive industry, in particular, is feeling the chip shortage acutely, with reports that large car makers like Ford, Nissan and Honda are temporarily closing some plants as they cut production.

New car sales, as people opted out of public transport, and growing demand for EVs have added to the auto chip woes.

There are varying estimates about the impact of the chip shortage, but it’s expected to have a significant economic impact given the variety of devices requiring chips today.

Car maker Ford estimates the chip shortage will cost between $1.3 billion (US$1 billion) and $3.4 billion (US$2.5 billion), and Goldman Sachs estimates the shortage could lower US GDP by a full 1% in 2021 and even raise inflation as supply shortages push up prices.

Any just why has the world run out of chips?

The pandemic wreaked havoc on supply chains and demand patterns, although there are factors at play.

Widespread remote work and schooling created a surge in demand for computing and electronic devices while cars and household appliances saw an uptick in demand.

Chip manufacturing plants were closed with COVID-19 outbreaks and the concentration of semiconductor production, with Taiwan Semiconductor (TSMC) and Samsung accounting for some 70% of chip production, restricts capacity building.

A spike in the bitcoin price has also been blamed for adding to the pressure, as demand for processing units for mining exceeds availabiity.

Is there a fix?

The US is looking to ease some of its chip shortage problems, passing a US$50 billion package to boost home-grown semiconductor research and development.

A new industry alliance, Semiconductors in America Coalition, that includes AWS, Apple, Google and Microsoft, has formed to support the funding package.

It noted that US chip manufacturing has decreased from 37 per cent in 1990 to 12 per cent today and the country is at a competitive disadvantage in attracting new construction of semiconductor manufacturing facilities, or “fabs.”

The group doesn’t want the government to intervene in what it calls a “supply-demand imbalance” while industry corrects the shortage; instead it wants help with long-term support to “build the additional capacity necessary to have more resilient supply chains to ensure critical technologies will be there when we need them”.

However, the cost and technical requirements to build chip manufacturing means that measures to expand production capacity take time to come online while the industry works to address the backlog.

Reusing and extending the life of certain types of computing technologies has been raised by IBM president Jim Whitehurst.

In Australia, semiconductor design and manufacturing is extremely limited and a 2020 report from the NSW Chief Scientist puts a long-term timeline on any local industry.

“Small steps aligned with a long-term vision for the Australian semiconductor industry will create new capability, talent pools, businesses and new options that all may make significant impacts on a 10- or 15-year horizon,” the report said.