The world is facing a severe semiconductor shortage right now, and it shows no signs of abating anytime soon. Besides the combined efforts of top semiconductor manufacturing facilities and government initiatives, the microchip shortage continues as the demand has skyrocketed amidst the disrupted supply chain.
From smart devices to tumble dryers, cars to electric toothbrushes, machinery to dishwashers, and everything in between harness the power of microchips, the building block of technology. Like many other current global challenges, the shortage of semiconductors initially began with the COVID-19 pandemic, but the continuous shortage of chips has brought a range of production lines to a halt. The global silicon chip shortage appeared as a surprise to many investors that rely on the tiny and ubiquitous electronic item for manufacturing electronic products and automobiles. Besides investors, consumers are also facing the brunt of an unprecedented semiconductor shortfall that has led to delayed car deliveries, shortage of home appliances, costlier smartphones, and these effects are going to last until at least the first half of 2022.
Every Industry at Risk
According to an analysis by investment bank Goldman Sachs, the semiconductor shortage is affecting at least 169 different industries, from small manufacturing hubs to big conglomerates. As the bulk of chip production remains concentrated in a handful of suppliers, the shortage could worsen. One of the world’s biggest buyers of semiconductors, Apple Inc. had to postpone the launch of the iPhone 12 by two months due to confronting microchip shortage. South Korean tech giant Samsung is also experiencing crippling effects of chip imbalance in the IT sector, especially around certain set products and display products and hence, the company might skip the launch of the next Samsung Galaxy Note smartphone till 2022. Siemens, one of the leading suppliers of automation systems for power grids, buildings and trains is continuously putting efforts to mitigate the potential risks from component shortages. Industries manufacturing televisions, washing machines, refrigerators, and other commonly used household goods are next in line to face the grave consequences of microchip shortages in the coming months.
An average car requires somewhere between 50-150 microchips. The shortage resulted in automakers like Volkswagen, Honda, Toyota, and General Motors to temporarily shut down production facility. Some automobile makers are leaving out high-end features in their vehicles as a result of a limited supply of electronic components. While Nissan is leaving navigation systems out of the car, Ram Trucks has topped equipping its trucks with intelligent rear-view mirrors that monitor blind spots and Renault is no longer including digital screen behind steering wheels in certain models. The rental car industry is also suffering from the impact of chip shortage as they are not able to receive new vehicle orders quickly at a time when demand is already high. Companies in China are boosting the stockpile of in-demand chips to reduce the global effects of semiconductor shortage, but it is only adding to the difficulty for other firms to get a hold of the microchips.
How did Global Semiconductor Shortage Happen?
• Coronavirus Pandemic
The lockdown restrictions imposed during the COVID-19 pandemic had a severe impact on the manufacturing industries as plants were closed and production halted. The temporary ban on production activities coupled with tighter restrictions on ports and international borders resulted in slowing down the mobility of items. At the same time, demand for new electronic equipment exploded due to work from home policy, rising need for online classes, and up-gradation of existing home entertainment options. Most of the electronic devices such as mobile phones, laptops, etc. require semiconductors, but due to halted production, many industries manufacturing these devices did not order enough semiconductors to meet the rising demand in the future. Not only the electronic sector, but also healthcare, cosmetics, construction, defence, and many others had to face the brunt of the disrupted supply chain of semiconductors. Now as the pandemic is slowly starting to abate, the pent-up demand for electronic devices and vehicles is putting strain on the existing supply chain.
• Panic Buying
As the news of the semiconductor shortage began to emerge, many industries started to stockpile chips. The panic buying added to the overall shortage, reducing the limited supply and lead to high costs. Commenting on the rising incidences of panic buying, Tesla CEO Elon Musk tweeted, “Fear of running out is causing every company to overorder – like the toilet paper shortage, but at epic scale” as the chip shortage continues to create havoc on Tesla’s supply chain.
• USA Government Sanctions on Chinese Technology
USA ex-President Donald Trump exacerbated the semiconductor shortage starting a trade war with China during the coronavirus pandemic. Trump’s administration’s actions against key Chinese chip factories caused a major supply chain disruption. First, the White House banned Chinese telecommunications giant, Huawei to purchase chips made with American technology. Huawei stockpiled semiconductors ahead of the ban to keep building products whereas its rivals started snapping chips to increase their market share. Secondly, some of SMIC’s customers are looking for different chip factories as there is lingering fear among manufacturers of potential disruption in production with new US government rules.
• Extreme Weather
Global warming is causing extreme weather changes around the world, that are disrupting businesses and supply chains. Semiconductor manufacturers are facing the brunt of extreme weather scenarios as most of the manufacturing hubs are concentrated in areas prone to power cuts. During extreme weather conditions, utility services prioritize service to residential areas instead of manufacturing hubs, which put a halt on the production of factories that run for 24 hours. Currently, Taiwan dominates the advanced microchip market, supplying chips to customers like Apple and Nvidia. The region is currently experiencing its worst drought in more than 50 years, which has led to the drying up of reservoirs. TSMC requires around 156,000 tons of water a day and the water shortages are making the microchip shortage even worse.
• Failed Forecasts
The industry experts could not contemplate the spike in demand for electronic products, which led to a huge gap between demand and supply. Many smartphone and automotive manufacturers were expecting a downtrend in demand, so they had cut their semiconductor supply. Since the majority of industries are dependent on manufacturing facilities for access to microchips, the failed forecast led to gaping holes in supply. Stadium LED Display