Knowing Different Reasons for the Shortage of Semiconductors
The shortage of semiconductors has led to the reliance of the modern world on minuscule components. These building blocks do allow electronic devices to process their data. But the question is, why is all this happening, and what further steps can be taken to prevent such an issue?
Is There Really a Shortage of Semiconductors?
According to news reports, a severe shortage of semiconductors has been creating panic among automobile makers and electronic firms worldwide. Experts say the excessive spending by people on electronic items during the pandemic and the huge demand is among the top reasons for this shortage. Other reasons include the closure of factories during the pandemic and Chinese top tech firm Huawei hoarding semiconductors as a result of the US ban.
Tim Cook, the Apple CEO, made a statement saying that the shortage will affect the production of iPhones and iPads. As per analysts, companies will have to bear the effects of the shortage for at least a year. Meanwhile, since manufacturers are hiking prices, consumers can expect to pay more for electronic items and automobiles.
How It Began
The start of the COVID-19 pandemic in the early months of 2020 was a disaster and a shock to the world. This was a time when there was a spree going on for electrical items. A chain of events and panic attacks led to a minor bump in consumer demand. There was an unexpected rise in the demand for chip-heavy gadgets. The companies building these devices sent out a wave of semiconductors orders, which rippled with the supply chain.
People began panicking and went on to buy extra monitors, televisions, games, laptops, etc. First, people wanted to beat the lockdown boredom, and second, they knew that they would need the essential electronic items to continue working at home. This overwhelmed the chip factories that manufactured the globe’s computer chips virtually.
The bleeding-edge chips empowered gaming consoles, smartphones, household appliances or 5g modems, etc. As per the estimates of Goldman Sachs, there were at least 169 industries that had faced disruptions due to the shortage of semiconductors, which potentially shaved 1% of the US GDP in the year 2021.
Situation During the Pandemic
The pre-pandemic threat did pose enormous challenges for the semiconductor industry, but the situation during the pandemic got worse. When plants started to re-open, the producers of electronic goods continued to place orders in huge numbers. This situation led to an ever-increasing backlog for semiconductor chips. Temporary closure of factories due to the lockdown restrictions also put more pressure on the supplies.
Although the Pandemic has been one of the main reasons for the shortage of semiconductors, it wasn’t the only reason. It was in February when there was a storm in Texas and affected several production plants. In March, there was an obnoxious fire that ripped through the Japanese factory. Adding to the fuel, even US-China tensions have little to contribute to this situation. In August 2020, the US went on to ban the companies whose chips had been using US technology from selling to Huawei, the Chinese giant, over the espionage allegations. Huawei tried to outsmart by collecting semiconductors much ahead of this sanction coming into effect. Unfortunately, other companies started following the same, which finally led to further straining of the supplies.
Threat to Other Industries
The same forces that snarled the supply chain for semiconductors also led to a shortage of various things globally. Currently, one of the most visible victims has been the automobile industry, as many car brands were forced to slow down the output in recent months.
As the car makers slashed their production during the early pandemic days, the chip suppliers, in return, turned to their clients from various other sectors, such as electronic goods, which were pretty much in high demand during the pandemic. Car brands, such as Volvo and Volkswagen, screamed hard to hold the semiconductor suppliers, especially when the sales started to revive again.
Compared to the automobile players, the smartphone industry was a little on a safer side, as many companies had stocked up the chips, but now these companies have also started to suffer due to the shortage. Apple is one of the prominent ones, which did get hit by the production, but the smaller players are the ones that are likely to get massively affected. In addition, games consoles, such as Xbox and PlayStation, have also been victims of a shorter supply.
Governments across the globe have been trying to push the capacity of chip-making so that industries would not have to suffer to the extent they are now. In May 2021, the South Korean government announced a massive investment of $451 billion in a bid and a hope to become a giant in the semiconductor industry. The US Senate last month voted in subsidiaries worth $52 billion for chip plants known as fabs.
Lately, the European Union is also on the go, seeking to double the shares of the capacity of the global chip manufacturing industry to 20% by the end of 2030. But the problem is that these chip factories cannot open overnight, especially those that make semiconductor chips. This is because, especially for the semiconductor chips, there is quite a delicate process involved, which presses the layers of chemicals into silicons.
Building newer capacities does take considerable time. For a new fab to come into play, it would roughly take about 2.5+ years. Undoubtedly, it is excellent that expansions are taking place now, but whatever progress is taking place now, we will reap its benefits post-2023 only. Until then, for a year and a half, we will have to live with the shortage of semiconductors. Some long-term factors also meant there was a global demand, which means there was hyper-growth. This indicates that plenty of companies were storing their essential data in the cloud, requiring the need to build more data centres.
In the industry across, there is a unanimous acknowledgement that the shortage of semiconductors will last up to one year. However, the continuous squeeze will end up in higher prices for the consumers. Companies will have no choice, and to curb the demand, they will have to increase the price by a huge margin.
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