A lack of semiconductors has disrupted industries globally throughout 2021, and the situation seems to be worsening, with the global chip shortage showing no signs of coming to an end. The global chip shortage has led to major losses despite rising demands.
An analysis by Goldman Sachs suggests that the global chip shortage has impacted at least 169 industries throughout the world, and has started affecting major economies such as the US and UK.
What triggered the global chip shortage?
The global chip shortage was initially triggered by the COVID-19 pandemic. The pandemic leads to about a 6% increase in demand for new phones and computers, which run on semiconductors, with the majority of staff working from home and children studying from home.
The pandemic was enough to reveal all the weak points of the global chip supply chain. The majority of large tech companies are dependent on TSMC (Taiwan Semiconductor Manufacturing Company) and Samsung Semiconductors to outsource chip manufacturing.
Both TSMC and Samsung are situated in Asian countries, namely Taiwan and South Korea, respectively, which were affected the most due to the pandemic causing major slowdowns. With only 7.4 of the world’s semiconductors manufactured in the USA.
When will it end?
This is a very hard question to answer; analysts had earlier predicted that this shortage would end before the start of 2022; however, there’s no sign of any improvement in terms of production.
It is said that this shortage could last till 2025 if the geopolitical side of things doesn’t work out. Mainly because of geopolitical tensions between Taiwan and China, with China trying to invade Taiwan as we have seen, with China continuously sending nuclear-armed jets illegally into Taiwanese airspace.
Taiwan’s TSMC is one of the greatest leaders in terms of manufacturing semiconductors for large tech companies including Nvidia, Apple, Qualcomm, Samsung, Mediatek, AMD, and many other small companies.
One of the main reasons for China wanting to invade Taiwan could be to conquer Taiwan’s semiconductor prowess, this could allow China to push aggressive trading tactics, cutting off the US from the Semiconductor supply, like the US had done with Huawei by forcing American companies such as Google to end their business relations with Huawei. If Taiwan and China clash with each other, it would disrupt the global semiconductor supply chain even more.
What are we doing to end this?
To end this many Governments all over the world have shifted their interest towards this issue and are working to strengthen the semiconductor supply chain by pushing national companies to build their foundries for manufacturing semiconductors rather than depending on outsourcing it from a small group of Asian countries.
U.S President Joe Biden has taken active steps toward the issue and has announced plans to invest $50 billion in semiconductor manufacturing and research as part of his drive to rebuild U.S. semiconductor manufacturing under a $2 trillion infrastructure plan.
Apart from governments, many companies have come forward with plans to mitigate the issue. Companies such as Intel spending $20 billion to build two new chip manufacturing foundries in Arizona to serve consumers electronics manufacturers. While Bosch, the European company has invested $1.2 billion to build a new chip manufacturing foundry in Germany mainly to supply the automotive industry.
However, India’s role as a semiconductor manufacturer is low, but India has emerged as a semiconductor designer and provides chip designs to many huge chip manufacturers.
Apart from this, India is being seen as a new frontier for investment with many countries wanting to set up their chip manufacturing plant in India as we have seen, with Taiwan wanting to set up new semiconductor manufacturing plants in India, with investment equaling to $7.5 billion.
The global economies are constantly trying to end this shortage and have made huge strides to stop something like this from ever happening again, but still, it will take at least a couple of years to fully mitigate the shortage, if things work out just the way we have expected.