Semiconductor chips have spread from computers and automobiles to a wide range of other electronics that we use on an everyday basis. You might expect to find semiconductor chips in electronic devices such as smartphones, laptops, tablets, and gaming consoles. But they are now in common household appliances such as washing machines, refrigerators, and even electric toothbrushes.
With our increasing dependence on automation and technology assistance, the demand for these chips started skyrocketing in the last few years. Then the ongoing pandemic forced everyone to further rely on technology for remote working, remote learning, and staying connected with friends and family. This further increased the demand, with IDC reporting that semiconductor sales to grew more than 10.8% and reached a mammoth $464 billion in sales during 2020. Additionally, IDC says that there are no signs of this trend to reverse. It expects that the semiconductor market will grow by an additional 12.5% to reach $522 billion by the close of 2021.
Unfortunately, there is currently a world-wide shortage of semiconductor chips.
Understanding the shortage
While the COVID-19 pandemic led to increased demand for semiconductor chips, it also forced many semiconductor manufacturers to temporarily shut down to protect workers. Major chip manufacturing factories, along with ports that ship the chips around the world, remained closed for months. The increasing consumer demand and lack of supply started a backlog, causing a ripple in the supply chain.
What caused the shortage?
Experts believe that there are a variety of factors for the current global shortage of semiconductor chips. As previously stated, the spread of COVID-19 and its crippling cascading effects are the major factors for the crisis.
Another crucial factor is the ongoing US-China trade war that has been impacting the global tech world. The United States imposed sanctions and trade restrictions on some of the biggest Chinese semiconductor manufacturers, which further deteriorated the situation. In spite of sanctions, the vast majority of semiconductors chips are either made, assembled, or shipped from China and about 90% of global electronics go through China’s Yantian port. However the port was closed for a brief duration due to the pandemic. This halted the chip supply as hundreds of container ships were forced to wait at the dock.
Taiwan is one of the world’s biggest exporters of semiconductors and would have normally picked up the slack. However, the country experienced its most severe drought in over a century which added yet another bottleneck in the manufacturing process.
Several bad decisions by automotive industries were also factors in the ongoing shortage. Automobile companies use semiconductors in their digital components such as speedometers, infotainment systems, and other computerized drive-assisting features. With the rise of COVID-19, many automobile giants anticipated a major economic hit and canceled all their pending and upcoming orders for the chips. To make up for the loss of automotive contracts, a majority of these chip-makers re-tooled their manufacturing for chips in consumer electronics. When vehicle sales rebounded, the automotive industry faced a massive chip shortage. Nissan announced that it will be making 500,000 fewer vehicles due to lack of chips. General Motors had to interrupt their automobile production. Other manufacturing giants such as Volkswagen, Ford, Renault, Jaguar, and Land Rover are also severely affected and are expected to lose billions in revenue.
While automobiles and consumer electronics are the most badly hit, several other industries have been impacted as almost all modern tech and electronics now require semiconductor chips.
When will this resolve?
American chip manufacturing giant, Intel has already announced plans to scale up their chip production in the US. It announced in March 2021 that it intends to spend $20 billion on two new manufacturing plants in Arizona. They are also in talks with the European Commission to set up their manufacturing units there. Taiwanese manufacturers like Samsung and Taiwan Semiconductor Manufacturing Company (TSMC) are also looking to open manufacturing units in the US. While new plants could revamp the chip manufacturing landscape for the US and other parts of the world, it could take years for them to become a reality.
When will the shortage stop? While some industry experts believe that the shortage might end by 2022, others like Intel CEO Patrick Gelsinger, believe that the shortage could last an additional two years.