The often-discussed chipset shortage brought on by the COVID-19 pandemic has sustainably affected several industries, and a full recovery is not projected until 2024. Although the smart credentials and government ID markets have not been immune, they have been dealt a far lesser blow. This year, ABI Research forecasts shipments to reach 596 million units—a number that would compare favorably to pre-pandemic levels—followed by a year-over-year growth to 766 million in 2026. As travel restrictions continue to weaken, obtaining and renewing passports will gain stronger interest, as ePassport shipments will reach 176 million in 2024.
Overcoming the Chipset Shortage
Changes to remote work and personal lifestyles associated with the pandemic led to an increase in demand for items that best suits those needs: consumer electronic goods, wearables, and work-from-home computing devices. Also, companies and factories that shut down during the pandemic led to an overall decrease in productivity. Vendors quickly began to realize their supply would not be able to hold up against this increased demand, as infrastructure and logistics difficulties mounted. Although the smart credentials market also felt the pain of an interrupted global supply chain, its position looks rosier than others.
The Digital ID market is contract-based, rather than transactional. In other words, these orders take priority by vendors and typically are filled, no matter what, and despite any fluctuations in price (which is absorbed by the vendors). Relatedly, remote work and global travel restrictions have significantly reduced demand for IDs that is still recovering. Passport renewals remain lower than at pre-pandemic levels, and this lower demand has led to a natural reduction in supply—lessening the impact of the overall chipset shortage.
Weathering the Storm
As travel restrictions weaken, demand for ePassports and smart credentials will resume, placing increased pressure on the supply chain and mitigating the market’s immunity from the chipset shortage.
Relief from the shortage will begin toward the end of 2022 at the earliest, but 2024 looks like a more optimistic view of a complete comeback. However, production costs will undoubtedly rise in tandem while investors simultaneously look to recoup any financial losses. Not to be forgotten is the unpredictability and potential resurgence of COVID-19. It appears likely, therefore, that the relative good fortune the digital identity market has experienced in comparison to automotive and other industries will level off.
Forecasts of expected supply requirements should be shared with suppliers as early as possible to provide transparency, enabling suppliers to get ahead of and minimize uncertainty. It is important to note that chipset prices are not expected to dip to their pre-pandemic levels, and new business contract negotiations between suppliers and vendors will begin at those higher levels. ABI Research finds that increases in chipset prices total approximately 15% in comparison to pre-shortage prices as that relates to smart credentials. Price changes depend on the chip type, with certain chips involved in government ID personalization equipment having seen price increases in the realm of 300% to 500%, albeit at low volumes.
Stakeholders should consider that growth within the ID space will be a significant uphill climb. The barriers in supply, infrastructure, and cost will make creating new opportunities difficult, with some vendors struggling to maintain their existing business as well.
These findings are from ABI Research’s The Impact of the Global Chipset Shortage on Citizen Digital Identities application analysis report. This report is part of the company’s Citizen Digital Identity research service, which includes research, data, and ABI Insights. Based on extensive primary interviews, Application Analysis reports present in-depth analysis on key market trends and factors for a specific technology.
