Global Semiconductor Shortage: A Brewing Crisis

Semiconductors, also known as microchips or integrated circuits (ICs), are essential components in every electronics product, whether it be a simple remote control of television, or a supercomputer used to simulate weather patterns. They are the “brain” within every electronic device. The world is in the grips of a global chip shortage crippling industries like automotives, smartphones etc. Apple, for example, has staggered the release of new iPhones to adjust for reduced supply. Ford, Toyota, Nissan and VW are among global carmakers that have scaled back output. Lead times for many semiconductors are one year out right now, and these devices are in just about everything we use. The chip shortages are expected to cause widespread shortages of everything, from electronics to medical devices to technology and networking equipment.

What caused the shortage?

As the pandemic spread globally in spring 2020, carmakers such as General Motors, Ford Motor, and Volkswagen had to halt production temporarily. Expecting a prolonged market slowdown, they canceled orders for chips used in car electronics, such as driver assistance and navigation systems. Chip foundries like Taiwan Semiconductor Manufacturing Corp (TSMC) reassigned their spare production capacity for the remainder of that year to companies making smartphones, laptops and gaming devices, which were experiencing a surge in demand during the pandemic lockdowns.

As car sales rebounded quicker than anticipated and manufacturers sought to increase production, chip factories couldn’t keep up due to long lead times for order scheduling. The semiconductor shortage soon affected other sectors like consumer electronics and home appliances, which experienced a surge in demand during the pandemic but struggled to secure enough supplies to meet it.

Chips are now utilized in a wider range of products, and each product, such as cars or smartphones, requires more chips than before. The shortage worsened due to “double booking” by anxious chip buyers, driven by supply chain uncertainty stemming from the US-China tech war. Geopolitical factors, notably tighter regulations by the Trump administration on semiconductor sales to Chinese firms also contributed. It has highlighted the critical role of semiconductors in tech leadership, overall economic growth and national security.

The chip shortage looks set to persist for some time yet. It can take up to two years to get complex semiconductor production factories up and running. The pandemic and the chip shortage have made one thing abundantly clear. A flexible, agile supply chain is crucial to navigating the changes and staying resilient.

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Global Semiconductor Shortage: A Brewing Crisis

Published by Sharekhan Education | April 19, 2021

Global Semiconductor Shortage: A Brewing Crisis

What caused the shortage?

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