What do we know about the global chip shortage





Introduction

The worldwide chip shortage will continue into 2022 because of a lack of essential semiconductors, according to experts.

The severity of the 2022 drought in the industry should not be ignored, and capacity has had its ups and downs in the past. But why are we in this position, and how, when, and where will it get resolved?


 

1. What is the cause of the worldwide chip shortage?

The worldwide chip scarcity was caused by the Covid-19 epidemic and the increase in demand for electronics. Consumers and businesses began buying new laptops and servers to accommodate staff who worked remotely as well as children being home-schooled. In 2020, sales increased 6.5% in comparison to 2018, despite overall worldwide semiconductor sales falling between them. Since then, sales have continued to grow at a breakneck pace; according to the Semiconductor Industry Association, they were 26% higher than at the same period last year in May 2021.

The epidemic has therefore exposed pressure points in the worldwide chip supply chain, with the bulk of manufacturing done by few firms– Taiwan’s TSMC and South Korea’s Samsung are the main one. When it comes to cutting-edge microprocessors used in mobile devices or for military applications, foundries like Samsung and TSMC are particularly powerful.

Aside from the pandemic, other reasons for the shortage include a drought in Taiwan, which has left TSMC and other manufacturers scrambling to get enough water, which is critical in chip manufacturing.



2. What sectors are most affected by the worldwide chip shortage?

The scarcity has had an impact on a wide range of industries, including the shipment of Sony's forthcoming PS5 games console, as well as television and other OLED displays.The automobile sector has been particularly badly hit, with production lines throughout the world having to shut for weeks at a time due to a lack of components.The demand for automobile manufacturers appears to be worsening, with Ford and General Motors announcing closures of plants in North America, while it has prompted Jaguar Land Rover to cut its sales expectations for 2021. According to GlobalData's research, the economic loss to the automobile sector as a result of worldwide chip shortage is $47 billion and rising.

Why is there a shortage of automotive chips?

Due to the severity of the pandemic and his lack of visibility, many people were hesitant to buy automobiles while they waited for news. As a result, automobile sales have been slow. "The [chip] foundries business model is based on profit margin and volume", according to Gaurav Gupta, vice-president for semiconductors and electronics at Gartner. “Automotive electronics is a tiny portion of their business, so they are no longer viewed as a priority by the automotive industry.” Joe Biden’s Covid-19 stimulus package, which saw American citizens given up to $2,000 by the government, has also seen demand for new cars in the US market spike.“ A lot of people have that money burning a hole in their back pocket, and are putting it down on a car” said Calum MacRae, head of automotive at GlobalData.



3. What is being done to alleviate the worldwide chip shortage?

Demand for semiconductors is expected to continue to rise as more sectors undertake digital transformation, with chip manufacturers and governments striving to expand capacity in supply chains. TSMC is investing $100m in additional capacity over the next three years, while Samsung and SK Hynix, along with the South Korean government, have pledged to make $451bn of investment in capacity and incentives for chip makers.

However, there is an understanding that chip supply chains must be diversified to reduce Taiwan and South Korea's influence. “America only makes about 10% of the chips it uses,” said Mike Orme, who covers the semiconductor market for GlobalData. “That’s not music to the ears of the American military or aerospace industry.” US president Joe Biden has pledged to support the semiconductor sector as part of his Build Back Better plan for boosting manufacturing, and a massive bipartisan tech funding bill introduced last month would see $52bn earmarked for US chip production. Intel, now under the leadership of Pat Gelsinger, plans to expand its fab capacity and is spending $20bn on two new factories in Arizona.

The EU governments have agreed to attempt to increase chip manufacturing capacity across the continent, although the UK government has yet to suggest any initiatives to assist its national semiconductor sector. Indeed, after a takeover by Nexperia, the UK's biggest chip factory, Newport Wafer Fab, has become Chinese



4. When will the worldwide chip scarcity be over?

Semiconductors are expected to rebound by the end of 2021, according to experts. However, because of a worldwide chip scarcity that is now predicted to last through 2022 and beyond, they believe that supply will not return until 2023 at the earliest. According to Malcolm Penn, CEO of industry research firm Future Horizons, the present investments in capacity will not have an immediate impact. “CapEx is now starting to take place, but it takes a year to build out and start working.”

According to Penn, the fourth quarter of 2021 may be a crucial sign as to how long the chip scarcity will endure. According to Penn, demand typically slows in Q4, which might assist suppliers in catching up on purchases. “That slowdown is unlikely to be severe enough to bring supply and demand back into balance, but if we limp through it, shortages will persist through the first half of 2022 until the current CapEx spend starts to impact supply,” Penn said, adding that if demand continues to be stronger than usual, “the shortages could easily persist into the first half of 2023.”


5. Will there be another worldwide semiconductor in the future?

The worldwide shortage of chips has, in the meantime, created a global scarcity. The demand for electronics is anticipated to escalate even faster as components become more advanced. Even after the current worldwide chip scarcity ends, it's probable that additional supply issues will arise as demand for tech continues to rise. “The capacity of the chip makers are putting in place now will be enough for the next few years, and as these things come on stream there’ll be too much capacity,” said Gartner analyst Alan Priestley. “But then, in another five years, we’ll be maxing out capacity again because everyone wants the latest smartphones, and we expect to see demand for things like smart homes and electric vehicles increasing. The industry is very cyclical; that’s just the nature of the beast.”



 

Conclusion

There is a worldwide chip shortage, and it's expected to last through 2022. The demand for electronics is anticipated to escalate even faster as components become more advanced. Even after the current worldwide chip scarcity ends, it's probable that additional supply issues will arise as demand for tech continues to rise.

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