Market Health

Ongoing Chip Shortage Brings Stress to Holiday Shoppers

I remember the excitement my wife and I had while shopping for toys in the final weeks leading up to the holidays when our children were young. That was back in the late 1990s.

However, if you wait that long to buy holiday gifts this year, you may be out of luck. Especially if the toys on your child’s list contain any kind of electronics.

So let’s quickly review how semiconductor chips have become this year’s Grinch.

Chipless in Seattle… and Everywhere Else

The semiconductor chip shortage isn’t new. It all began back in early 2020, near the start of the pandemic.

Many Americans were stuck at home. So they ordered laptops, headphones, microphones and cameras to work remotely.

Kids at home also needed new laptops or tablets to participate in remote learning. And when some parents saw their children getting bored, they splurged on the latest gaming consoles.

To fill this demand, chipmakers borrowed from the slackened demand from car and truck manufacturers. However, by mid-2020, the demand for cars and light trucks came roaring back. But there weren’t enough chips in production lines to supply automakers’ demands.

Today’s cars are heavily decked out with electronics-driven features. In fact, electronics make up 40% of the cost of the average new car. That’s a lot of chips. And car and truck chips are different from those needed for other products.

But laptops and cars aren’t the only things that need chips. Everything from lightbulbs to video doorbells to refrigerators use them.

Electronic Toys: Few and Far Between

Many of today’s toys talk, react and move.

Those functions need chips in order to work. If the toy you’re hoping to buy has a battery or plug, it likely has chips inside.

In the past, many parents waited until just before the holidays to purchase gifts. Or they waited until just after the holidays when stores emptied their shelves of any leftover holiday items.

But that won’t work this year.

Unfortunately for retailers, electronic toys are the least urgent item on chipmakers’ lists.

Some toymakers warned parents to start their holiday shopping back in September. They were already seeing less stock due to the ongoing chip shortage and other supply chain issues.

But most parents let that advice go in one ear and out the other. And now they’re coming home from shopping empty-handed.

It doesn’t matter how much the item, or the chip inside it, costs. There simply isn’t enough global capacity to make all the chips needed by all the different industries that use them.

Time to Get Cracking

Haven’t started shopping for your children’s toys yet? You should stop praying to the last-minute inventory gods and get cracking.

The big-box websites are likely your best bet, but they don’t have unlimited inventory… especially for the most popular toys.

One of the hottest toys for this holiday season is a magical steaming cauldron, which has chips in it. Unfortunately, the Magic Mixies Magical Misting Cauldrons are completely sold out at Walmart (NYSE: WMT), Target (NYSE: TGT) and Amazon (Nasdaq: AMZN).

If you’re desperate to leave one of these under the tree, you can still find them on eBay (Nasdaq: EBAY). Just be prepared to pay two or three times the suggested retail price.

Overall supply chain issues are a continued drag on the big stores’ ability to get enough toys to sell.

Many chips are stuck in containers on ships floating outside the Port of Los Angeles and the Port of Long Beach. Workers are unloading containers around the clock, but it will be many months before U.S. supply chains normalize.

That’s why many semiconductor companies are on multiyear bull runs. They can easily sell everything they make, and demand isn’t slowing down anytime soon.

So if you haven’t done your holiday shopping yet, I suggest you get started as soon as you finish reading this article.

I hope your toy hunting efforts are successful. And while you’re at it, put a note in next year’s calendar to start your holiday shopping over Labor Day weekend!

Good investing,


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