The Global Chip Shortage – A Series of Unfortunate Events

 

Most modern technology from computers to automobiles to washing machines use semiconductor chips and the current shortage has brought chaos to the industry.   Vendors. Manufacturers, hardware consumers have all been affected in some way by the disruptions to the supply chain.  Views differ on when the disruption will continue to from mid-2022 to 2023.

The shortage has severely decreased production levels and increased lead times for any product containing any form of semiconductor chip.

In addition to the increased lead times due to the short supply, many manufacturers have opted to increase pricing to combat profit losses – which is more bad news for end-users.

 But how did the chip shortage come to be?

 

The current chip shortage has been created by a series of unfortunate occurrences within the manufacturing industry, referred to as ‘black swan events’. These unpredictable, and usually ‘once in a lifetime’ situations all combined to create the level of disruption we are experiencing today.

 

Coronavirus

 

COVID-19 is of course a key element that has contributed to disruptions to the semiconductor manufacturing industry and beyond. Lockdowns meant that production facilities were shut down despite no change in demand, and the increase in work from home created a higher demand for computers and monitors which created a misalignment between supply and demand.

 

China-United States trade war

 

Although COVID-19 had an undeniable and unforeseen impact on the industry, the blame cannot solely be placed there. September 2020 brought economic conflict between the United States and China after the US Department of Commerce put new restrictions on China’s largest semiconductor manufacturer, Semiconductor Manufacturing International Corporation (SMIC). These restrictions made it harder for the manufacturer to sell to companies with American ties and forced the customers to use other manufacturers like Samsung or Taiwan Semiconductor Manufacturing Company (TSMC), who were already operating at maximum production and could not supply the increased order volume.

 

Taiwan drought

 

Now the TSMC is working hard to keep up with the elevated order volume after the new trade restrictions, but another unforeseen event was waiting in the wings. The Taiwan drought of May 2021 was the worst one of its kind in over half a century and caused problems with the manufacturing process which relies on large amounts of ultra-pure water to clean the factories. For context, TSMC facilities alone used around 63,000 tons of water a day – more than 10% of the supply of two local reservoirs.

 

Renesas Electronics Corporation fire

 

A Japanese based factory that supplies a staggering 30% of the global microcontroller market, a specific kind of semiconductor used in cars, caught fire in March 2021. The company said it would take them at least 100 days to recover from the blaze – prolonging the already lengthy lead times already present throughout the semiconductor market.

 

In addition to these events, the cost for copper and other raw materials associated with chip production saw a price increase in 2021, creating less profit margin for semiconductor manufacturers and forcing them to implement end product price increases.

What can be done?

 

The current events have made many reconsider the supply chain as a whole as 2023 is a long time to wait for things to return to normal. World leaders have tried to implement plans to mitigate the impact across the board, with the EU presenting the ‘European Chip Act’ which will push supply chain resilience, and President Joe Biden of the United States signed a similar order to promote supply chain strength.

It has also forced many manufacturers to look at the reuse and recycling of chip components.

Let’s hope that these Unfortunate Events are resolved sooner than later.