Estimated reading time: 5 minutes
Background
The semiconductor chip shortage has dominated the international news for some time. What exactly does this mean? And how does this affects our daily lives? Why did this happen? And how can we stop it from happening again? Did Covid-19 cause this? As this is a complex issue, I shall break it down for you.
You will hear a few questions discussed in news media and general gossip. However, to shed more light on the chip shortage cause. You must go back a long way and ask who makes semiconductors? This question is important because so many companies use chips. Including Raspberry PI , Apple, Dell, and HP, and too many to mention that they use chips in their products.
Then some companies design circuits and outsource the production to silicon makers. Finally, many companies make semiconductors. Although the three largest by market cap are. TSMC (Taiwan Semiconductor Manufacturing Company), are the largest of the three, then we have Intel and Texas Instruments.
Factors involved in the great chip shortage
Now we have a better understanding of the background. We should discuss factors that have contributed to this semiconductor chip shortage.
Covid-19 Pandemic – due to this crisis, there was a massive push for remote work and remote learning. With Covid lockdowns, production slowed, inventories became scarce, and the increase in demand made things very difficult. As a result, the school authorities were issuing schoolchildren around the globe their computers.
2020 also saw the introduction of the USA-China trade war, which escalated as time passed. Trade wars are rarely a good thing. Some restrictions made it difficult to sell to companies based in America. So they turned to others who had already stretched to maximum production.
Mother Nature plays her part
Severe weather in parts of North America forces plants to shut down. Other parts of the world, like Taiwan, had significant droughts that caused production plants to encounter problems. In part due to the sheer amount of water they consume to clean their plants and silicon wafers. For example, one such company TSMC (Taiwan Semiconductor Manufacturing Company), used more than 63,000 tons of water daily! This is a truly staggering amount of water.
The natural disaster kept piling up – in 2020 and 2021. Two Japanese semiconductor companies caught fire, taking six months at least to get production back. The loss of production for that time is devastating when referring to an already strained global supply. Then more fires; in January 2022, another fire hit a German plant in Berlin, affecting the production of equipment used in the chip manufacturing process.
So you have shortages and then issues affecting the production of equipment needed to produce chips. Such equipment is required to open even more facilities or fabrication plants (fabs for short).
How companies made decisions affecting the chip shortage
On Average, cars these days use an awful lot of chips with backup cameras to other amenities, to all the sensors in the engines, drive trains, braking systems, diagnostic systems, environmental systems through to lane assist subsystems, and smartphone-enabled stereos. These all add up to a staggering 1,500 or even double that in some vehicles. This industry has really suffered from the semiconductor chip shortage.
At the start of the 2020 Covid-19 pandemic, car companies canceled chip contracts as they enormously and incorrectly predicted how long sales would drop. This led chip manufacturers to switch their production lines away from car companies and toward the growing demand from computer producers. HP and Dell are among the largest of these.
Remember that any manufacturing company has a fixed amount they can produce, and when the car companies told them No, they turned to where business was booming. Later the car companies came crawling back and said ok, we want our chips now, a little late and abysmal planning.
So now chip companies are stuck in the middle having to expand to meet this increased demand, bearing the brunt of something they did not create.
Graphics cards and crypto mining, clastic supply, and demand
The technology sector was booming, with a lot more people working from home. Also, the demand for graphics cards used to mine crypto coins was another booming industry. Due to this high demand, prices soared, and supplies became scarce.
During the covid-19 lockdown, many people increased their video game console use with cinemas closed. This rapidly became another booming industry, further putting more strain on-chip companies’ ability to keep up with demand.
How do we get out of this never-ending cycle?
All is not lost, throughout the world, there are plans afoot to address semiconductor chip shortage cause, and remediate its effects.
https://www.micron.com/Manufacturing-Expansion
Late in 2021, the EU enacted a law that will increase EU-based semiconductor plants and boost EU availability.
In the US, President Joe Biden signed an executive order to address the chip shortage and further bolster the chip supply in the USA. This was done in conjunction with major technology companies’ meetings held around the same time. India has also enacted similar legislation to address the semiconductor chip shortage.
The primary chip companies have significant expansion plans of either existing plants or building new ones. The largest of these TMSC has pledged over $10 Billion US Dollars to open a second new fab In the US..
The best estimate is that the will the semiconductor chip shortage end somewhat in the latter part of 2022, but these new plants will need a few more years to get up to speed. So like it or not, we have had this problem for some time yet to come.