Global Microchip Shortage: When and How Will It End?
The world is facing a severe shortage of semiconductors right now, and it shows no signs of abating any time soon. In addition to the combined efforts of major semiconductor manufacturing facilities and government initiatives, the microchip shortage continues as demand has soared amid the disrupted supply chain.
From smart devices to dryers, from cars to electric toothbrushes, from machinery to dishwashers, and everything in between, harness the power of microchips, the cornerstone of technology. Like many other current global challenges, the semiconductor shortage initially began with the COVID-19 pandemic, but the ongoing chip shortage has brought a number of production lines to a standstill. The global shortage of silicon chips surprised many investors who rely on the tiny, ubiquitous electronic item for making electronics and automobiles. In addition to investors, consumers are also facing the brunt of an unprecedented semiconductor deficit that has led to delayed car deliveries, shortages of home appliances, more expensive smartphones, and these effects will last at least until the first half. of 2022.
All industries at risk
According to an analysis by the investment bank Goldman Sachs, the semiconductor shortage is affecting at least 169 different industries, from small manufacturing centers to large conglomerates. With most chip production still concentrated in 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 microchips. South Korean tech giant Samsung is also experiencing the crippling effects of the chip imbalance in the IT sector, especially around certain fixed and display products, and therefore the company could 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 continually strives to mitigate the potential risks of component shortages. Industries that make televisions, washing machines, refrigerators and other commonly used household items are next in line to face the dire consequences of a microchip shortage in the coming months.
An average car requires between 50 and 150 microchips. The shortage caused automakers including Volkswagen, Honda, Toyota and General Motors to temporarily close production facilities. Some automakers are omitting high-end features from their vehicles as a result of a limited supply of electronic components. Weather Nissan you’re leaving the navigation systems out of the car, Ram Trucks has outgrown equipping its trucks with smart rear-view mirrors that monitor blind spots and Renault no longer includes behind-the-wheel digital display on certain models. The car rental industry is also feeling the impact of the chip shortage as they are unable to take orders for new vehicles quickly at a time when demand is already high. Companies in China are increasing the stock of chips in demand to reduce the global effects of the semiconductor shortage, but it only increases the difficulty for other companies to obtain the microchips.
How did the global shortage of semiconductors occur?
• Coronavirus pandemic
The lockdown restrictions imposed during the COVID-19 pandemic had a severe impact on manufacturing industries as plants were closed and production halted. The temporary ban on production activities coupled with tighter restrictions at ports and international borders 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 classes, and the improvement of existing home entertainment options. Most electronic devices like mobile phones, laptops, etc. they require semiconductors, but due to production disruption, many industries that manufacture these devices did not order enough semiconductors to meet the growing demand in the future. Not only the electronics sector, but also healthcare, cosmetics, construction, defense and many others had to bear the brunt of the disrupted semiconductor supply chain. Now that the pandemic is slowly beginning to subside, pent-up demand for electronic devices and vehicles is putting pressure on the existing supply chain.
• Panic buying
As news of the semiconductor shortage began to break, many industries began to stockpile chips. Panic buying added to overall shortages, reducing limited supply and driving up costs. Commenting on the rising incidences of panic buying, Tesla CEO Elon Musk tweeted: “Fear of running out of products is causing all companies to over-order, like toilet paper shortages, but on a massive scale. epic,” as chip shortages continue to wreak havoc on Tesla’s supply chain. .
• US government sanctions on Chinese technology
Former US President Donald Trump has exacerbated semiconductor shortages and started a trade war with China during the coronavirus pandemic. The Trump administration’s actions against major Chinese chip factories caused major supply chain disruption. First, the White House banned Chinese telecoms giant Huawei from buying chips made with American technology. Huawei stockpiled semiconductors before the ban to keep building products, while its rivals started making chips to increase their market share. Second, some of SMIC’s customers are looking at different chip factories, as there is a lingering fear among manufacturers of possible production disruptions with the new US government regulations.
• Extreme weather
Global warming is causing extreme weather changes around the world, which are disrupting businesses and supply chains. Semiconductor manufacturers face the brunt of extreme weather scenarios as most manufacturing centers are concentrated in areas prone to power outages. During extreme weather conditions, utilities prioritize serving residential areas over manufacturing centers, halting production from 24-hour factories. Taiwan currently dominates the market for advanced microchips, supplying chips to customers such as Apple and Nvidia. The region is currently experiencing its worst drought in more than 50 years, which has caused the depletion of reservoirs. TSMC requires around 156,000 tons of water a day and the water shortage is making the microchip shortage even worse.
• Failed forecasts
Industry insiders failed to see the surge in demand for electronics, leading to a wide gap between demand and supply. Many smartphone and car makers had expected a downward trend in demand, so they had cut their supply of semiconductors. Since most industries rely on manufacturing facilities for access to microchips, the failed forecast led to large gaps 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 end the global semiconductor crisis. A single microchip goes through more than 1,000 steps and crosses international borders several times before reaching the end user. Thus, policy changes in one region affect the global semiconductor supply chain. The worst of the semiconductor shortage is yet to come, so one just needs to beef up and focus on things that can be revitalized, like resources and a network of suppliers.
• Expansion of production capacity
The global shortage of chips has increased the need to invest billions in new production lines and upgrading equipment to meet increased demand. Taiwan Semiconductor Manufacturing Company (TSMC) it is responsible for producing 80% of the microchips used for automobiles. To meet global demand, TSMC has planned to invest around USD 2.87 to expand mature capacity at its factory in Nanjing, China, as well as invest $12 trillion to establish another chip factory in Arizona. The largest chipmaker in the US, Intel Corporation it is expected to invest around $3.5 trillion to increase production at its wafer factory in New Mexico. US-based semiconductor manufacturer Global Foundries it also plans to build a new manufacturing plant in Singapore with an investment of more than $4 billion to support the fast-growing automotive, 5G mobility and secure device segments.
• Orientation towards Technological Sovereignty
About three-quarters of the semiconductor supply comes from China, Japan, Taiwan and South Korea, but the COVID-19 pandemic has disrupted the global supply chain, with countries around the world making billions. investment to increase the production of microchips and reduce dependency. in 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 seeking $37 million investment value to speed up the domestic production of semiconductors. Europe currently represents less than 10% of world chip production. In an effort to become more self-sufficient, the European Commission wants to increase chip manufacturing capacity to twenty%. US tech giant Intel has provided $8 trillion to public subsidies for the establishment of semiconductor manufacturing companies. Federal incentives for industries can increase US manufacturing capacity and help minimize the imbalance between supply and demand, but the aid must be available throughout the semiconductor design and manufacturing supply chain.
• Cost effective factory upgrades
While factory expansions can take up to 12 months, factory upgrades can bring capacity online in as little as three months. Invest in upgrading the standard mechanical interface (SMIF) to an existing 200mm manufacturing facility using additional tooling, improving clean room space, etc. can increase wafer production capacity without any incremental cost for additional starting materials, labor, or processing costs. A typical 1.3% improvement in line throughput due to SMIF’s hands-off features and automation could generate an additional 325 wafers per month. Upgrading a 200mm fab with SMIF can significantly improve control of the wafer environment and extend the life of the facility.