Over the last 18 months, countless industries have felt the effects of COVID-19. Unfortunately, the pandemic didn’t stop for anyone and many businesses had to close its doors. This meant an influx of backlog in production. Pair that with an increased product demand by customers and it spells trouble for the industry. One of the most significant products in need was semiconductors, or better known as microchips, which triggered a mass shortage.
What is a microchip?
According to ASML, a semiconductor manufacturer based in the Netherlands, a microchip is a set of electronic circuits on a small flat piece of silicon. On the chip, transistors act as miniature electrical switches that can turn a current on or off. Almost every electronic device requires a microchip, from video games to dishwashers, cars and air conditioning units. However, due to factories having to close its doors, manufacturers were forced to stop the development of microchips. “During this time, the production of materials was limited, which meant the available inventory of microchips were quickly used up without being able to be replaced,” said Tom Breen, sales and procurement manager for HVAC at Noble.
Pandemic influence
The factories and world may have paused, but that didn’t stop customers from buying new products in record fashion. Statistics Canada reported that online purchases soared 99.3 per cent from February to May 2020, leading to a new e-commerce sales record at $3.9 billion. With people stuck at home, boredom set in and sales for phones, video games, computers and home entertainment systems increased, as per the report. But as customers demanded more electronics, the essential component was in a shortage.
Microchips were becoming a scarce commodity as factories could not keep up with the high demands as “borders were closed, shipments were stuck in ports, essentially everything was paused,” said Breen. It was a perfect storm of various factors all combining to make one problem. “For example, the boat being stuck in the Suez Canal, that had hundreds of boats backed up on both sides, and those boats contained materials we needed,” said Breen.
Microchips in HVAC
But how does this shortage affect the HVAC industry? Simple. Appliances in the trades now require microchips to function, “the major issue is that every major piece of equipment needs to talk to each other now, and microchips provide that,” said Breen. With technology constantly advancing, wireless connectivity is a significant component and one that has taken over. “It’s not like before when it was just a transformer and a relay; now everything has a circuit board, and it’s easier to replace one piece of the board,” said Breen.
While essentially every piece of equipment needs microchips to run, specific products may be affected more than others. “Modern air conditioning systems are made with microchips and won’t run without them,” said Kevin Burrell, HVAC technician at Consult Mechanical. In plain terms, no microchips mean no air conditioners. “The average air conditioner has a run time of 14 years; after that, it starts to fail and usually, air conditioner replacements or installs don’t take too much time, roughly between two and three days,” said Burrell. These aren’t normal times though— “replacements are seeing weeks and even months delays.”
Currently, it’s a problem for the whole industry as “contractors can’t buy from wholesalers, wholesalers can’t buy from manufacturers, manufacturers can’t get materials and products shipped,” said Breen. In addition to air conditioners, ductless mini splits have also been majorly affected. “For us, in particular, it’s been our ductless mini-splits because we’ve had an issue with the sub-assembly components,” said Breen.
Various industries are dealing with the effects of the microchip shortage, specifically the automotive, as new cars can use up to 100 microchips, ranging from touchscreens to transmissions, and contracting companies are also seeing delays with replacements to work vehicles. According to the Heating Refrigeration and Air Conditioning Institute of Canada (HRAI), fleet operators in the HVAC/R industry are struggling to replace vehicles as auto manufacturers have to make decisions on which vehicles to complete and ship and which of those to sell retail. “This isn’t a result of anyone not doing their job. Instead, it’s been a perfect storm of everything going wrong in a manufactures sense,” said Breen.
Future
The shortage has provided a trickle-down effect that everyone is feeling. No one has come out unscathed, and contractors have also been put in a tricky spot. “For contractors, this has been terrible because you usually buy per job and when you need the product,” said Burrell. Contractors now are forced to decide on what to do with their inventory. “They either have to stock up on products they may not need or keep going with the buy as you go option and run the risk of waiting,” said Breen.
While many industries are struggling now, the microchip shortage may linger on for the foreseeable future. “As demands remain high and supply remain constrained, this will last through 2022 and into 2023,” said Breen.