The Global Shortage of Semiconductor Chips

Created on 20 Jan 2022

Wraps up in 4 Min

Read by 4k people

Updated on 01 Feb 2023

What is the link between 1.5 lakh unsold Land Rover’s and you not getting a PlayStation 5?

A Global shortage of semiconductor chips

Chips are in almost everything you use - they are in your phone, your computer and your TV. They run your car and allow you to make purchases with your credit card. They even power the factories that make all of these things. Who thought such a small thing would halt the entire world!
Right now, tens of thousands of cars are being stored in factories waiting to be fitted with chips whenever they become available. Once the chips are installed, the cars will be ready to be delivered to customers everywhere, and meanwhile, experts say the global chip crisis will be resolved eventually but just not in the near future. 

So, without wasting any second, let’s try to analyse the reasons for which we are facing a global semiconductor chip shortage:  

A global pandemic

The Covid-19 pandemic turned a global shortage of chips into a crisis. Many industries pulled back their chip orders in anticipation of what was expected to be a significant blow to economies around the world, but when lockdowns called for people to stay at home, online ordering skyrocketed in a jiffy.
People purchased computers for their homes & offices, electronic & fitness items to keep them active, and gaming devices to be entertained during the pandemic which accelerated the pace of digitalization.
Once industries realized the demand for electronics had only stalled temporarily and was now accelerating, they had one tiny problem. There weren't enough chips for new orders and a trillion chips are made every year. It takes around two months to make a chip and there aren't a lot of companies that have the expertise to make such chips.

A war between superpowers

Then there's politics and its hand in the global shortage of chips was when the U.S. government placed restrictions on China's biggest chip manufacturer - SMIC (Semiconductor Manufacturing International Corporation). 
The situation made it difficult to sell chips to companies with American ties. Companies turned to the manufacturing plants such as Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung, but these companies were already producing chips at maximum capacity. TSMC makes chips for Sony, Apple, Microsoft, Qualcomm, Nvidia and even chip manufacturing giant Intel. 

Relentless drought and fire

To make chips, manufacturers use large amounts of ultra-pure water to clean factories and wafers. TSMC's facility alone employed more than 63 tons of water a day in 2019 that makes up more than 10 of the supply of two local reservoirs, so when Taiwan experienced its worst drought in more than 50 years in 2021, things got even worse.
On top of this, a fire broke out in Renesas Semiconductor Manufacturing Co. Ltd, Naca factory in Japan and gutted the N3 building, which mainly produces automotive mini-controllers.
Almost 1400 semiconductors are required to make a car, so this fire was a big hit to the automotive industry. Though more than 95 per cent of its capacity has been restored since its reopening, but the plant is yet to reach previous levels of production. 
There is a huge time gap between ordering a semiconductor and delivering it. This was increased to a record-breaking of 18 weeks after already surpassing a previously unprecedented mark of 16 weeks.

Real-world consequences

Chip shortages are hammering automakers and forcing them into shutdowns that cost them billions of dollars in lost production and sales. Ford, Tesla, BMW and Daimler are among the companies that have reported difficulties in acquiring automotive parts. 
One of the world's largest automakers General Motors, said it could lose up to 2 billion because the chip shortage forced it to temporarily shut down some of its plants. Overall the global automotive industry will produce four million fewer vehicles than planned and lose roughly 110 billion dollars in sales.
If you are hoping to secure a gaming console or high-end graphic cards, you may have to wait until 2023. Supplies are limited, and demand for high-ticket items is as widespread as ever. Many flagship GPUs and next-gen consoles are sold online with unannounced restock at hundreds of dollars above their suggested retail price on sites like eBay. Both PlayStation 5 and Xbox series x consoles are often overpriced with markups ranging from 50 to 100 per cent.

The Bottom Line

Some companies depending on supply are battling the shortage by swapping puzzle pieces. Tesla had to rewrite its own vehicle software to support alternative chips and survive the shortage. This has helped Tesla maintain high levels of production and deliver hundreds of thousands of vehicles to customers but other companies have not been so lucky to fuel the digital future. 

Meanwhile, TATA motors is making changes in its product configurations and buying chips directly from stockists.
The chip manufacturing industry will need to keep innovating and further need to increase its capacity by working quicker, building square miles and employing more people and machines.
Until then, for the sake of our sanity, let's try not to sit by our laptops hitting refresh to see when that new PS5 will finally be restocked, keep our expectations low as we await the release of a new iPhone and hope that the lingering effects of the pandemic finally fades away. 

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