Global chip shortage : An Analysis

Not many industries have suffered the fate of disarray as the chip industry after the advent of the Covid pandemic. Things were not great for chipmakers in 2020 due to the pandemic but instead of seeing any signs of improvement, 2021 has been even worse for the industry so far. There has been a deficit of chip supply as compared to the demand and it’s not just the electronic industry that is going through a rough phase but it’s many other industries as well. Unlike a couple of decades back when chips were mainly present in personal computers and specialized electronic appliances and gadgets. Now chips power the world. One of the worst-hit industries has been the automobile sector. When the first wave of Covid-19 hit the world, global sales of cars had dwindled, and to compensate for this, car manufacturers had lowered their chip orders from the manufacturers. These chips are a requirement for assembling the critical electronics and computers that are inside modern cars. 2021 saw a sudden increase in automobile sales and this caused the disruption in equilibrium of chip supply and many automobile manufacturers started giving large orders and chip fabrication plants like TSMC were unable to cope up with the sudden growth in demand. This parallel demand for chips has increased the backlog and even though the chip manufacturers are operating over time, they have not been able to keep up with the demand. Now even home appliances might face issues with their chip supply.

There is one more important aspect that we have to address and it’s the increased demand for electronics items after the pandemic. As many people were and are still stuck in homes, they are buying computers, consoles, televisions, and various other electronic components. Many companies have not been able t keep up with the demand due to this. Graphics card is one of those elusive items that have suffered a double whammy. Both potential gamers and crypto miners want their hands on the newest graphics card but due to a shortage of chips card manufacturers are not able to keep up with the demand. There have been many cases where individuals and groups are scalping (buying in bulk) these new cards and reselling them at much higher prices.

Basic appliances and car components often use chips manufactured with older technology. For instance, PC and smartphones are using 7nm manufacturing whereas cars manufacturers uses older 32 nm or 14 nm technology because they are comparatively cheaper to manufacture. But due to the shortage in supply, manufacturers are prioritizing their newer chips and it’s getting challenging to allocate resources for older manufacturing processes. Due to this many car manufacturers have scaled-down on the extra amenities in their models.

TSMC (Taiwan Semiconductor manufacturing company) is one of the biggest chip manufacturers in the world. The company produces 60 percent of the world’s chips for automobiles and 92 percent of cutting-edge chips. Recently Taiwan is experiencing its worst drought in over 50 years. A high quantity of water is required to clean the wafers during the manufacturing of the chips. Droughts have only increased the problems in the manufacturing of these chips. There is immense pressure when most of the world’s chips are made in one single building. This also exposes the problem of relying on a single source of manufacturing. Due to globalization and completion, most of the world’s manufacturing shifted to Asia. The issue of chip shortage will most probably remain next year as well. Intel (U.S) is has started to set up two new manufacturing plants in Arizona. This comes at a time when many have realized that a concentrated source of manufacturing is not the most reliable thing and diversification is the only way to deter any future shortages.