Understanding The Global Chip Shortage, A Major Concern Involving Exceedingly Small Components
As little as a quarter, these tiny semiconductor chips are halting automobile manufacture across the nation. Automobile dealerships now have deserted parking slots, consumers now have very few alternatives when it comes to new car sales, and buyers are waiting indefinitely for their new ride to be built. Tens of thousands of new vehicles sit in parking lots awaiting semiconductor chips before they can be shipped to dealers.
The chips are built of silicon transistors, which are present in the majority of minerals on the earth's surface. They enable the operation of computers, smart phones, appliances, and other electrical equipment. Vehicles, too, use these chips.
The chip scarcity is a result of the COVID-19 epidemic, which raised demand for personal electronics such as mobile phones and laptop computers, in which the chips are utilised, to the point that production could not keep up with demand.
Even in times of great demand, production cannot be ramped up quickly due to the difficulty and time involved in setting up chip foundries.
Establishing chip manufacturing operations is costly and fraught with danger. According to The Indian Express, India has attempted to establish chip manufacturing plants but failed owing to a lack of long-term vision and government incentives, as well as inadequate planning. The government now wishes to increase chip manufacture in India and has proposed tax incentives for individuals who establish semiconductor manufacturing facilities in the nation.
- The semiconductor scarcity will undoubtedly have a direct effect on consumers. It has disrupted the worldwide supply chain and stifled electronic manufacturing. Chip costs are increasing, which has a knock-on effect on the prices of electrical products.
- The supply-demand imbalance is widening rapidly. This disparity has begun to manifest itself in the rising pricing of technology, increased wait times, and unavailability of items, among other things.
- The automotive industry has taken the brunt of this crisis. During the pandemic's early stages, the majority of automakers feared an economic decline and some even breached long-term contracts.
-The production processes of microchip foundries were then retooled to make components for electronic products. As a result, automobile manufacturers have been left high and dry.
- Numerous domestic automakers are being compelled to increase car costs as a result of rising semiconductor prices and limited supply. Global vehicle manufacturers are also suffering market share losses as a result of this crisis.
The worldwide chip scarcity is unavoidably resulting in an upsurge in counterfeit products. According to The Center for Advanced Life Cycle Engineering, when businesses are faced with a difficult purchasing scenario, they lose their guard and may not immediately recognise that they have been offered illicit parts. The centre recommended that businesses examine the records of the firm supplying the components and undertake rigorous testing on the components, while admitting that enterprises frequently lack the time to do so.
With demand for semiconductors expected to continue to grow as more sectors embrace digital transformation, chip manufacturers and governments are collaborating to expand supply networks' capacity. TSMC is spending $100 million in extra capacity over the next three years, while Samsung, SK Hynix, and the government have agreed to invest $451 billion on chip manufacturing capacity and incentives. Intel, currently led by Pat Gelsinger, intends to expand its fabrication capacity by investing $20 billion in two new plants in Arizona. Other bodies and institutions have also pledged to work together to expand the chip manufacturing capability.
Although the supply of semiconductors was supposed to recover by the end of 2021, analysts believe that the worldwide chip deficit could now stretch throughout next year and maybe into 2023. Current capacity investments will have a delayed effect. The last quarter of 2021 may be critical in determining how long the chip scarcity will persist. Demand often drops in Q4, allowing suppliers to catch up on backlogs.
While that slowdown is unlikely to be severe enough to rebalance supply and demand, if we limp through it, shortages will persist through the first half of 2022, at least until current spending begins to impact supply; if demand remains stronger than usual, shortages could easily persist into the first half of 2023.
Even if the present global chip shortfall is resolved, it is possible that other supply issues will arise as demand for electronics continues to grow. The capacity that [chip makers] are building now will suffice for the next few years, and as these things come online, there will be an excess of capacity. But in another five years, we'll be maxing out capacity again, as everyone wants the latest smartphones, and we expect demand for smart homes and electric vehicles to increase. The industry is quite cyclical; that is simply the way it is.