The world is currently facing a severe shortage of semiconductors, and it shows no signs of slowing down any time soon. Besides the combined efforts of major semiconductor fabs and government initiatives, the shortage of microchips continues as demand has soared amid a disrupted supply chain.
From smart appliances to clothes dryers, cars to electric toothbrushes, machines to dishwashers, and everything in between, harness the power of microchips, the cornerstone of technology. Like many other current global challenges, the semiconductor shortage began with the COVID-19 pandemic, but the ongoing chip shortage has brought a whole host of production lines to a standstill. The global shortage of silicon chips has come as a surprise to many investors who rely on this tiny and ubiquitous electronic element to manufacture electronics and automobiles. In addition to investors, consumers are also facing the brunt of an unprecedented shortage of semiconductors that has led to delays in car deliveries, a shortage of home appliances, more expensive smartphones, and these effects will last for the least until the first half of 2022.
Every industry at risk
According to an analysis by the investment bank Goldman Sachs, the shortage of semiconductors affects at least 169 different business sectors, from small manufacturing centers to large conglomerates. As the bulk of chip production remains concentrated among a handful of suppliers, the shortage could worsen. One of the world’s largest buyers of semiconductors, Apple Inc.. had to postpone the launch of the iPhone 12 for two months due to a shortage of chips. South Korean tech giant Samsung is also experiencing the crippling effects of chip imbalance in the IT industry, especially around some ensemble products and display products and as a result, the company may skip the launch of the next Samsung Galaxy Note smartphone until 2022. siemens, one of the leading providers of automation systems for power grids, buildings and trains continuously strives to mitigate the potential risks of component shortages. Industries making televisions, washing machines, refrigerators and other commonly used household items are the next to face the severe consequences of microchip shortages in the coming months.
An average car requires between 50 and 150 microchips. The shortage has led automakers like Volkswagen, Honda, Toyota and General Motors to temporarily shut down their production facilities. Some automakers omit high-end features from their vehicles due to a limited supply of electronic components. While Nissan leaves the navigation systems out of the car, Ram Trucks has in mind to equip its trucks with smart mirrors that monitor blind spots and Renault no longer includes the digital display behind the steering wheels in some models. The car rental industry is also suffering from the impact of the chip shortage as it is unable to quickly receive new vehicle orders at a time when demand is already high. Chinese companies are increasing the stock of in-demand chips to reduce the global effects of the semiconductor shortage, but that only adds to the difficulty for other companies to get their hands on microchips.
How Did the Global Semiconductor Shortage Occur?
• Corona virus pandemic
Lockdown restrictions imposed during the COVID-19 pandemic have had a severe impact on manufacturing industries as factories have been shut down and production halted. The temporary ban on production activities coupled with tighter restrictions on international ports and borders has resulted in a slowdown in the mobility of items. At the same time, the demand for new electronic equipment has skyrocketed due to the work-from-home policy, the growing need for online courses and the upgrading of existing home entertainment options. Most electronic devices such as cell phones, laptops, etc. require semiconductors, but due to the halt in production, many industries manufacturing these devices have not ordered enough semiconductors to meet the growing demand in the future. Not only the electronics sector, but also healthcare, cosmetics, construction, defense and many others have had to bear the brunt of the disrupted semiconductor supply chain. Now that the pandemic is slowly starting to subside, pent-up demand for electronics and vehicles is straining the existing supply chain.
• Panic buying
As news of the semiconductor shortage began to emerge, many industries began stockpiling chips. Panic buying added to the overall shortage, reducing limited supply and leading to high costs. Commenting on the growing incidences of panic buying, Tesla CEO Elon Musk tweeted: “Fear of running out drives every company to overorder – like toilet paper shortages, but on an epic scale” as the chip shortage continues to wreak havoc on Tesla’s supply chain. .
• US government sanctions on Chinese technology
Former US President Donald Trump has exacerbated the shortage of semiconductors by starting a trade war with China during the coronavirus pandemic. The Trump administration’s actions against major Chinese chip factories have caused a major supply chain disruption. First, the White House banned Chinese telecommunications giant Huawei from buying chips made with American technology. Huawei stockpiled semiconductors ahead of the ban to continue manufacturing products while rivals began cracking chips to increase market share. Second, some SMIC customers are looking for different chip factories as manufacturers still fear a potential production disruption with new US government rules.
• Extreme weather conditions
Global warming is causing extreme climate change around the world, which is disrupting businesses and supply chains. Semiconductor manufacturers face extreme weather scenarios head-on, as most manufacturing centers are concentrated in areas prone to power outages. During extreme weather conditions, utilities prioritize service to residential areas over manufacturing hubs, halting production at factories that operate 24 hours a day. Currently, Taiwan dominates the advanced microchip market, providing chips to customers like Apple and Nvidia. The region is currently experiencing its worst drought in more than 50 years, which has caused reservoirs to dry up. TSMC needs around 156,000 tons of water a day, and water shortages are further exacerbating the microchip shortage.
• Forecast failure
Industry experts could not contemplate the surge in demand for electronic products, which has led to a huge gap between demand and supply. Many smartphone and car makers expected a downward trend in demand, so they had reduced their supply of semiconductors. Since the majority of industries depend on manufacturing facilities for access to microchips, the failure of forecasts has resulted in gaping holes in supply.
How to alleviate the global shortage of microchips?
The half-trillion-dollar semiconductor supply chain is one of the most complex, so there is no easy solution to ending the global semiconductor crisis. A single microchip undergoes more than 1000 steps and crosses international borders several times before reaching the end user. Therefore, policy changes in one region affect the global semiconductor supply chain. The worst of the semiconductor shortage is yet to come, so just get stronger and focus on things that can be revitalized like resources and a supplier network.
• Increase in production capacity
The global shortage of chips has increased the need to invest billions in new production lines and equipment upgrades to meet the increased demand. Taiwan Semiconductor Manufacturing Co (TSMC) is responsible for the production of 80% of the microchips used for cars. To meet global demand, TSMC plans to invest approximately US$2.87 to expand the mature capacity of its factory in Nanjing, China, as well as invest $12 billion to establish another chip factory in Arizona. America’s largest chipmaker, Intel Corp. should invest about $3.5 billion to increase production at its wafer factory in New Mexico. US-based semiconductor manufacturer Global foundries also plans to build a new manufacturing facility in Singapore investing more than $4 billion to support the fast-growing automotive, 5G mobility and secure device segments.
• Towards technological sovereignty
About three-quarters of semiconductor supply comes from China, Japan, Taiwan and South Korea, but the COVID-19 pandemic has disrupted the global supply chain, so countries in the around the world are investing billions to increase microchip production and reduce addiction. on foreign nations to meet their demands. On February 24, 2021, US President Joe Biden signed an executive order calling for a review of the US semiconductor supply chain. Biden is also looking $37 million investments to accelerate the national production of semiconductors. Europe currently represents less than ten% of global chip production. In an effort to become more self-sufficient, the European Commission wants to increase chip manufacturing capacity to 20%. The American technology giant Intel has provided USD8 billion to public subsidies for the creation of semiconductor manufacturing companies. Federal industry incentives can increase U.S. manufacturing capacity and help minimize the imbalance between supply and demand, but assistance must be available throughout the design and manufacturing supply chain. of semiconductors.
• Cost effective Fab upgrades
While manufacturing extensions can take up to 12 months, manufacturing upgrades can bring capacity online in as little as three months. Investment in upgrading the Standard Mechanical Interface (SMIF) to an existing 200mm manufacturing facility using additional tools, upgrading clean room space, etc. can increase wafer production capacity without any additional cost for additional starting material, labor or processing costs. . A typical 1.3% improvement in line throughput due to SMIF’s zero-touch features and automation could result in the production of 325 additional wafers per month. Upgrading a 200mm fab with SMIF can dramatically improve wafer environmental control and extend plant life.
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