Global microchip shortage: when and how will it end?

The world is facing a severe semiconductor shortage 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, microchip shortages continue as demand has skyrocketed amid disrupted supply chains.

From smart devices to dryers, cars to electric toothbrushes, 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 continued chip shortages have brought a number of production lines to a standstill. The global shortage of silicon chips has surprised many investors who rely on the tiny and ubiquitous electronic item for the manufacture of electronics and automobiles. In addition to investors, consumers are also bearing the brunt of an unprecedented semiconductor shortfall that has led to car delivery delays, home appliance shortages, more expensive smartphones, and these effects will last until at least 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 at a handful of suppliers, the shortage could get worse. One of the largest buyers of semiconductors in the world, 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 chilling effects of chip imbalance in the IT sector, especially around certain display and fixed products, and therefore the company could skip the release 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 microchip shortages in the coming months.

An average car requires between 50 and 150 microchips. The shortage caused automakers such as Volkswagen, Honda, Toyota and General Motors to temporarily close production facilities. Some automakers are missing high-end features from their vehicles as a result of a limited supply of electronic components. While nissan you are leaving the navigation systems out of the car, ram trucks has gone beyond equipping its trucks with smart rearview mirrors that monitor blind spots and renault no longer includes digital display behind the wheel on certain models. The car rental industry is also feeling the impact of chip shortages, as they are unable to take orders for new vehicles quickly at a time when demand is already high. Firms in China are increasing the stock of in-demand chips to reduce the global effects of semiconductor shortages, but it only makes it more difficult for other firms to obtain the microchips.

How did the global semiconductor shortage 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 together 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 make these devices did not order enough semiconductors to meet 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 electronics and vehicles is putting pressure on the existing supply chain.

• Panic buying

As the news of the semiconductor shortage began to break, many industries began to accumulate chips. Panic buying added to general shortages, reducing limited supply and leading to high costs. Commenting on the increasing incidences of panic buying, Tesla CEO Elon Musk tweeted: “Fear of running out of product is causing all businesses to overorder, like toilet paper shortages, but on an epic scale,” as chip shortages continue to wreak havoc on Tesla’s supply chain.

• US government sanctions on Chinese technology

Former US President Donald Trump 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 disruption to the supply chain. First, the White House banned the Chinese telecommunications giant Huawei from buying chips made with American technology. Huawei stockpiled semiconductors before the ban to continue building products, while rivals began 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 potential production disruptions with 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 service to residential areas instead of manufacturing centers, halting production from 24-hour factories. Taiwan currently dominates the market for advanced microchips, supplying chips to customers like 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 about 156,000 tons of water a day, and water shortages are making the microchip shortage even worse.

• Failed forecasts

Industry experts could not contemplate the increase in demand for electronic products, which caused a large 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. With most industries relying on manufacturing facilities for access to microchips, the failed forecast led to large supply gaps.

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 multiple times before reaching the end user. Therefore, changes in the policies of a region affect the global supply chain of semiconductors. The worst of the semiconductor shortage is yet to come, so one just needs to beef up and focus on the things that can be reinvigorated, like resources and a supplier network.

• Expansion of production capacity

The global shortage of chips has increased the need to invest billions in new production lines and upgrade 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 facility in Singapore with an investment of more than USD 4 billion to support the fast-growing automotive, 5G mobility and secure device segments.

• Orientation 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 around the world are making billions of investments to increase microchip production and reduce reliance 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 seeking $37 million investment value to accelerate 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 for twenty%. American technology giant Intel has provided USD 8 billion 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 help 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 standard mechanical interface (SMIF) upgrade to an existing 200mm manufacturing facility using additional tooling, improve clean room space, etc. You 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 result in an additional 325 wafers per month. Upgrading a 200mm mill with SMIF can significantly improve control of the wafer environment and extend the life of the facility.

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