Chip Shortage
Observations on our luck
By Tathagata Ghosh and Hemanth Madduri
The Global Chip Shortage is majorly a supply chain crises in which the demand for the integrated circuits or the semiconductor chips is greater than the supply, affecting more than 169 industries. A result of “Bad decisions, bad luck and then increased demand” has now led to major shortages and ramped up prices for cars, graphics cards, video game consoles, and other products that require semiconductors.
Chips
A Chip, Integrated Circuit is an electric circuit with many components such as transistors and wiring formed on a semiconductor wafer. They are present in almost everything electric around us and functions as the brain of our electronics. These tiny technological marvels helps in powering everything right from our phone to our computers to our cars. There would be no smartphones, radios, TVs, computers, video games, automobiles or advanced medical diagnostic equipment without these chips.
The most important thing about chip is its construction which involves multiple steps, days and experts on hand to pack billions of transistors in a fingernail-sized space.
Chip Shortage
The bottleneck in chip supply is spiraling into a crisis with systemic implications. The cluster of signals that are now emerging and has the potential to shape the global outlook for the decade ahead.
Reasons
- Due to the world shut down because of the COVID-19 pandemic, many factories closed making the supplies needed for chip manufacturing unavailable for months.
- The pandemic caused an explosive surge in demand for devices. People were at home, performing their daily tasks with the use of tablets, phones and other streaming devices which skyrocketed the needs beyond what manufacturers could provide.
- The auto industries cancelled their orders for chips assuming the economy was about to take a lengthy hit due to COVID-19 pandemic. This made chip companies to switch to making chips for consumer products instead of cars, attempting to meet the explosive consumer goods demand. Having retooled their plants to make chips for consumer goods instead of cars, a shortage of car chips ensued.
- A series of unlucky weather events delayed the manufacturing process of chips.
The severe drought in Taiwan lead to insufficient amount of pure water required for purifying silicon used in chip-production.
Winter Storms in Texas forced some of America’s only chip plants to halt production.
Japan’s Renesas plant, which creates almost one-third of the chips used in cars around the world, was severely damaged by a fire.
- Also, the port shut down lead to hundreds of container ships waiting to dock. This ended up in buildup of items waiting to be shipped, plunging the supply chain into further crisis.
- Taiwan’s tense relationship with China can be another major issue. Taiwan is the world’s leading chip producer and the theoretical possibility of war between China and Taiwan puts American access to the chip industry in potential jeopardy, and could be catastrophic for many industries that would be unable to get the chips they rely on.
Effects of Global Chip Shortage
The shortage is already hitting car manufacturers and could potentially slow the transition to electric vehicles (EVs) by affecting production numbers. Inflation may start to increase as production falls, complicating recovery plans as the world tries to rebound from the economic impacts of the still ongoing pandemic. And of course, ultimately every part of modern economies is reliant on computing power, from healthcare to finance.
Globally, vehicle makers have been worst hit by the chip shortage with major car manufacturers like Volkswagen, Ford, Renault, Nissan, and Jaguar Land Rover are feeling the heat.
Most companies have said that the disruption in vehicle supplies could last till at least 2022. Not just the auto industry but consumer goods and smartphone manufacturers are also under pressure to meet the rising demand for products.
An important geopolitical element is also emerging, as 92% of the world’s most advanced semiconductors are produced in Taiwan by TSMC. This is a massive head start that will take any other country years to catch up on. But it is becoming clear what a bottleneck this can be for the global economy, to have produced so tightly concentrated in one place. It also sharpens the technological and political rivalry between the US and China.
Solutions Being Put Forward to overcome Chip Shortage
Currently, many solutions are being discussed, the most intriguing among them is the evolution of Chiplets. If the relevant standards can be defined for both the interfaces between the chipsets and the functionality of the essential chipset circuits primarily produced using state-of-the-art technologies, this approach may offer a way to reliably equip the industry with small and medium quantities of highly integrated systems without supply problems.
References (Check these out for further information):
- Semiconductors
- Computer-Chips
- Decoded | Impact of semiconductor chip shortage on the global economy
- 2020–2021 global chip shortage
- Causesof the Global Semiconductor Shortage
- Chiplets: A Solution For The Shortage Of Chips
- Here’s what we know about the global chip shortage
- How to fix the semiconductor chip shortage (it’s more than manufacturing).
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