Chip Shortage 2020- 2021

What is a chip shortage?

A chip shortage or semiconductor shortage is a situation when demand for chips is higher than supply in the market.

What is a semiconductor chip?

It is a set of electronic circuits composed of electronic components like transistors and diodes on one small flat surface of semiconductor material like silicon.

Chips are inside smartphones, cars, alarm clocks, toothbrushes, and other electronic devices. 

Who produces chips?

In the semiconductor industry, there are companies that design the chips and companies that manufacture the chips.

Fabless companies like Qualcomm and AMD design the chips. 

Foundry companies like TSMC and GlobalFoundries manufacture the chips

Main Question – How did chip shortage 2020-2021 happen?

Main reasons:

COVID- 19:

From the demand side: In early 2020, Covid caused the shutdowns of vehicle assembly plants. As the facilities closed, the chip and wafer suppliers diverted the parts to other sectors such as consumer electronics. The demands for laptops and network peripherals were increasing to build virtual offices (Wayland, 2021). 

From the supply side: The shutdowns of chip designing and manufacturing companies reduced the supply of chips. A Chinese factory owned by South Korean semiconductor giant SK Hynix, one of the foundry companies halted operations after a plant worker was found to have an infection of the coronavirus. (South China, 2020)

Micron Technology’s factories in Singapore were also briefly shut down before returning to production on a very limited basis, in compliance with local regulations (Nellis, 2020). Texas Instruments Inc factories in Malaysia and Singapore operated at reduced levels (Nellis, 2020). 

Taiwan drought:

The manufacturing process of chips requires lots of water. TSMC, one of the world’s largest chip design and manufacturing companies, requires 156,000 tonnes of water a day. But, due to the serious droughts in Taiwan and the reservoirs drying up, the manufacturing process slowed down (Zhong, R., & Chien, 2021).

Other reasons:

A fire at a Japanese chip-making factory owned by Renesas Electronics Corp, which accounts for 30% of the global market for microcontroller units used in cars, caused a disruption in the manufacturing process (Reuters, 2021). 

Severe winter weather in Texas in early 2021 also forced Samsung Electronics Co Ltd, NXP Semiconductors, and Infineon to shut down factories temporarily. Infineon and NXP are major automotive chip suppliers (Reuters, 2021).

Who is in trouble?

Car-makers like Ford, Toyota, and Volkswagen have all partially slowed down their work in factories because of not enough chips needed to produce their cars. Consulting firm AlixPartners expects that the shortage will cut $60.6 billion in revenue from the global automotive industry this year (Wayland, 2021). 

Sony hasn’t been able to put together as many PS5 games consoles as it hoped, and Microsoft is cutting back production of its Xbox Series X. Samsung is also considering delaying its Galaxy Note phone (Mochizuki & Wu, 2020)

What’s next?

U.S. semiconductor companies account for 47 percent of global chip sales, but only 12 percent of global manufacturing is done in the United States, according to the Semiconductor Industry Association (Hunnicutt, T., & Bose, 2021). President Joe Biden said that he would seek $37 billion in funding for legislation to supercharge chip manufacturing in the United States (Hunnicutt, T., & Bose, 2021).

Intel plans to spend $20 billion to build a chip fabrication plant in Arizona (Leswing, 2021).

References:

• Hunnicutt, T., & Bose, N. (2021, February 24). Biden to press for $37 billion to boost chip manufacturing amid shortfall. Reuters. https://www.reuters.com/article/us-usa-biden-supply-chains/biden-to-press-for-37-billion-to-boost-chip-manufacturing-amid-shortfall-idUSKBN2AO13D. 

• Leswing, K. (2021, June 17). Intel CEO sees ’10 good years’ of chip industry growth. CNBC. https://www.cnbc.com/2021/06/16/intel-ceo-sees-10-good-years-of-chip-industry-growth.html. 

• Mochizuki, T., & Wu, D. (2020, September 15). Sony Is Said to Cut PS5 Target by 4 Million Due to Chip Woes. Bloomberg.com. https://www.bloomberg.com/news/articles/2020-09-15/sony-is-said-to-cut-ps5-forecast-by-4-million-due-to-chip-woes. 

• Nellis, S. (2020, April 8). With Singapore lockdown underway, ‘essential’ chipmakers count on less disruption. Reuters. https://www.reuters.com/article/us-health-coronavirus-semiconductors-foc/with-singapore-lockdown-underway-essential-chipmakers-count-on-less-disruption-idUSKBN21Q042. 

• Thomson Reuters. (2021, March 31). Explainer: Why is there a global chip shortage and why should you care? Reuters. https://www.reuters.com/article/chips-shortage-explainer-int/explainer-why-is-there-a-global-chip-shortage-and-why-should-you-care-idUSKBN2BN30J. 

• Wayland, M. (2021, February 11). How Covid led to a $60 billion global chip shortage for the auto industry. CNBC. https://www.cnbc.com/2021/02/11/how-covid-led-to-a-60-billion-global-chip-shortage-for-automakers.html. 

• Work stops at South Korean chip plant in China after positive coronavirus test. South China Morning Post. (2020, November 29). https://www.scmp.com/news/china/society/article/3111818/coronavirus-work-stops-south-korean-chip-plant-china-after. 

• Zhong, R., & Chien, A. C. (2021, April 8). Drought in Taiwan Pits Chip Makers Against Farmers. The New York Times. https://www.nytimes.com/2021/04/08/technology/taiwan-drought-tsmc-semiconductors.html.