The world is dealing with an IT crisis and it’s no secret about it – the semiconductor crisis.
Semiconductors act as the brains that power our technological devices. These chips, now smaller than a stamp and thinner than a piece of hair, have revolutionized the modern world. Innovation in the field has led to smarter, faster, and smaller technology (think pacemakers, smartphones, solar energy, self-driving cars, laptops, airplanes, just about everything you use). They’re also the second largest export in the U.S. and are responsible for 2 million American jobs.
The recent shortage of semiconductors sent American companies, as well as companies around the world, who usually rely on a lean inventory of the chips, into crisis.
US companies like GM and Ford have announced that they’re temporarily shutting down plants because of a semiconductor shortage. This led authorities to assess the semiconductor manufacturing capacities stateside, especially as the United States are relying on semiconductor as the building blocks of their digital economy. And right now, they don’t seem to be producing enough.
In the US, in February 2021, President Joe Biden issued an executive order to review America’s industrial supply chain, partially to assess why there was a shortage of production in the United States (microchips included). Federal authorities are considering more R&D measures to bring the whole supply chain home.
This is because U.S. semiconductors accounted for half of all global sales, or about $193 billion, in 2020. But only 12% of those chips are actually manufactured in the U.S. So while the U.S. still leads in design, supply-chain issues have become a problem and gives China, for example, a lot of leverage over the U.S.
With the start of the COVD-19 pandemic at the early stages of 2020, the supply chains for consumer electronics were under enormous pressure: people around the world had to find new ways to work and play.
The car industry was forced to shut down factories during lockdown which led to cancelled chip orders. But what they did not take into account, when forecasting a lower demand for the rest of the year due to the pandemic, was the faster-than-anticipated bounce back. This sent semiconductor supply chains into a downward spiral, creating a shortfall in the tiny electronics across a wide swathe of industries.
While car companies like General Motors, Ford Motor and Volkswagen were forced to temporarily shut down production lines and thus cancelling the chip orders, chip foundries like Taiwan Semiconductor Manufacturing Corp (TSMC) reassigned their production capacity for the remainder of 2020 to companies making smartphones, laptops and gaming devices, which were experiencing a surge in demand during the lockdowns. But when car sales increased in the third quarter, chip factories could not meet the high demands and could not respond fast enough.
What was the consequence?
Other industries, especially IT and telecom, experienced a spike in sales due to pandemic’s “stay at home” effect but were facing the same challenge: they found themselves unable to secure adequate supplies to meet the increased demand.
Apple reported, for instance, that the shortage in semiconductors will incur a cost of US$3 billion to US$4 billion in its financial third quarter to June, with the biggest impact felt on Mac and iPad products. Midea Group, the world’s largest maker of white goods like refrigerators, washing machines and air conditioners, said the prices of chips used for home appliances are set to increase as the global shortfall persists.
Xiaomi Corp recently increased the prices on some of its TV models, citing higher prices in key components, while Samsung Electronics and Sony have also raised prices on a range of products.
How long will this crisis last?
As Taiwanese semiconductor companies have boosted production in China, it seems like the semiconductor shortage that has gripped the world could last well into 2022. Intel, the semiconductor giant, on the other hand, warned on July 23 that the shortages can extend into 2023.
You can read more about the topic here: