International computer chip shortage boosts niche New Zealand business Rakon

An international shortage of microchips has boosted business for one niche New Zealand company.
An international shortage of microchips has boosted business for one niche New Zealand company. Photo credit: Getty Images

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A year ago Sony released its latest gaming console, the PlayStation 5. It was a big deal – new console releases often are – and by June of this year had shipped more than 10 million units.

Yet today, if you head to any electronics retailer in New Zealand and try buying a PS5, you're likely to be told they're out of stock, that you have to go on a waiting list.

The reason for this is not unprecedented demand; it's a global shortage of one of the most vital, but largely unseen, components all of us use in our everyday lives – in everything from televisions to gaming consoles, smartphones, washing machines, electric toothbrushes, even cars.

Computer chips

On Monday's episode of The Detail, Emile Donovan sits down with technology journalist Peter Griffin to discuss the factors behind the great computer chip shortage of 2020/21; why supply still hasn't caught up with demand, nearly two years on from the pandemic; and how a New Zealand company – a very minor player in the global computer chip market – has managed to take advantage of the situation.

There are two main types of computer chip, Peter Griffin says. One type is 'memory' chips: these are used by computer processors to store information, which is then delivered to your screen.

The second type is 'logic' chips: these are the 'brains' of our electronics, and many everyday products, like smartphones and the like, can't function without them. 

The logic chips are those worst affected by the shortage.

Peter Griffin says the main catalyst of the chip shortage revolves around car manufacturers. 

New cars these days contain many different features, from Bluetooth functionality to GPS, fancy displays, parking cameras and sensors, and so on; a single car can contain dozens, if not hundreds, of individual chips.

Electric cars also tend to use more chips than petrol vehicles, and because there's been a surge in demand for electric cars – influenced partly by government encouragement – there's been a corresponding surge in demand for computer chips. 

When the pandemic struck, auto manufacturers – anticipating a sharp downturn in demand – cancelled many of their orders for these computer chips.

Yet while there was a downturn, it was nowhere near as severe as expected. Eventually, auto manufacturers went back to chip distributors and asked whether they could reinstate their orders. 

But by that stage, the slack had already been picked up by increased demand for chips in other areas: the pandemic has brought on a surge of people wanting new smartphones, employers bulk-buying laptops, people working from home buying webcams, bored people buying gaming consoles, and so chip manufacturers were already stretched to breaking point.

In addition, computer chips are incredibly expensive to develop and manufacture: almost three-quarters of all the computer chips in the world are made by just five or six companies, which we are hugely reliant on. The biggest suppliers are in Taiwan, South Korea, Japan, the US and China – all countries whose production was badly hit by COVID-19 restrictions. 

However, a long-running New Zealand company has managed to turn these lemons into lemonade. 

Rakon, an Auckland-based company which manufactures crystal oscillators (listen to the podcast for an explanation of what these are) has quadrupled its operating profit year-on-year. 

Their products are mainly used in things like GPS transmitters, military hardware, radio transmitters, and so on. 

Since the supply of computer chips has dried up, Griffin says Rakon – which may have been considered a 'second-tier' supplier to many of their clients up until now, given they can't produce at scale the way chip foundries in Taiwan or South Korea can – has found itself in a sweet spot: electronics manufacturers are stockpiling chips, trying to get their hands on as many as possible, as supply is still reduced. 

Suddenly, in the space of a year, Rakon's wares became hugely sought-after around the world. 

The chip shortage, Griffin says, demonstrates the fragility of some aspects of the global economy: countries are reliant on one another for components; often, a chip designed in Silicon Valley will actually be manufactured in Taiwan. That means if there's a disruption in one of those countries, production suffers.

Additionally, complicated geopolitics – particularly around the state of Taiwan – mean the future is unpredictable.

And computer chips, by their nature, are a boom-and-bust kind of product: there are surges in demand when new consumer electronics come on the market, but it's lumpy and hard to predict when the chips will be in and out of demand.

Griffin says while the shortage is ongoing and acute, it hasn't really been passed on to the consumer in the form of increased prices.

Instead, long waiting lists have become a feature of buying things like new cars, certain goods – like the PlayStation 5 – and also bulk-buying things like laptops. 

He says while countries are investing hundreds of billions of dollars to increase chip manufacturing foundries, it will take some time for that increased supply to flow through – meaning the chip shortage is likely to continue for another year or two, at the very least. 

While the effects on everyday consumers will probably be minimal, Griffin says this may lead to a temporary slowdown in the release of new, cutting-edge products, as given the chip shortage, projected sales don't justify the investment. 


International computer chip shortage boosts niche New Zealand business Rakon