A global chip shortage has triggered massive distress as companies around the world fail to meet rising demand for a wide range of electronic goods and components. In this article, we decode what has triggered the chip shortage and how it is impacting the global economy.
n inexpensive chip that costs hardly a few dollars has led to billions of dollars worth of losses for major companies across the globe.
An acute shortage of semiconductors chips — used for manufacturing several goods including electronic products, vehicles, smartphones and other gadgets — has led to losses despite rising demand for such goods.
The global chip supply crunch, which started after the pandemic in 2020, has intensified over the last few months and major companies across several industries are struggling to meet the rising demand for electronic goods and components.
An analysis by Goldman Sachs suggested that at least 169 industries have been impacted by the global chip supply shortage. With no solution in sight till at least 2022, all countries around the world are staring at a massive hurdle. It has already started impacting major economies like the United States.
But what is behind the shortage of semiconductor chips, and why are they so crucial? Let’s try to make sense of the global chip crisis.
WHAT ARE SEMICONDUCTOR CHIPS?
With technology advancement across several sectors, semiconductors are literally the ‘heart’ of billions of products, ranging from smartphones, data centres, computers, laptops, tablets, smart devices, vehicles, household appliances, life-saving pharmaceutical devices, agri-tech, ATMs and more. The list goes on.
Semiconductor chips are made from silicon as it is a good electricity conductor. These chips are fitted into microcircuits that powers numerous modern-day electronic goods and components. It may be noted that all active components, integrated circuits, microchips, transistors and electronic sensors are built with semiconductor materials.
They enable key functions such as high-end computing, operation control, data processing, storage, input and output management, sensing, wireless connectively and more.
Therefore, these chips are integral to all emerging technologies such as artificial intelligence, quantum computing, advanced wireless networks, blockchain applications, 5G, IoT, drones, robotics, gaming and wearables.
Semiconductors chips are inexpensive parts that play a key role in manufacturing modern technology products and components. Simply put, semiconductor chips are the building blocks of modern computation.
Some Facts about semiconductor chips:
*Semiconductors are made primarily using silicon
*All modern tech products and components require semiconductors — from smartphones to vehicles
*Some popular companies that manufacture semiconductor chips are Intel, Samsung, Taiwan Semiconductor Manufacturing Company (TSMC), Qualcomm, Broadcom and Nvidia
*With advancements in technology, semiconductor chips are literally the backbone of many essential industries ranging from healthcare to agriculture
*Production of such chips can involve more than 1,000 steps and multiple country border crossings
*US is the leader in terms of R&D activities in chips, while Taiwan leads the way in the assembly, packaging and testing functions of semiconductors. A vast majority of the world’s chips are manufactured in China.
WHAT’S BEHIND THE GLOBAL CHIP SHORTAGE?
The shortage first emerged after the Covid-19 pandemic devastated most countries in the world in 2020, leading to widespread restrictions. Although the impact was not felt due to lower demand for goods during the pandemic, the situation has changed drastically.
While demand for electronic goods across various segments catapulted, companies have been unable to deliver due to the chip shortage.
Some key reasons behind the global chip shortage are supply chain disruptions due to the pandemic, a sharp rise in demand for electronic goods as more people are now working from home and lack of investment in chip building capacities.
Several reports indicate that the chip shortage may not end before 2022 as supply disruptions due to ongoing Covid restrictions may continue for at least a year.
Patrick Armstrong, CIO of Plurimi Investment Managers, told CNBC.com that the chip shortage could last at least 18 months before the demand-supply equation normalises.
Experts feel that countries will have to ramp up investments considerably in chip building capacities to resolve the ongoing crisis.
INDUSTRIES AFFECTED
Countless industries have been affected as global demand for semiconductor chips continue to outstrip supply.
Globally, vehicles makers have been worst hit by the chip shortage with major car manufacturers like Volkswagen, Ford, Renault, Nissan and Jaguar Land Rover are feeling the heat.
All these companies are likely to lose billions due to the shortage of chips, which are used in many car components such as digital speedometers, infotainment systems, computerised management of engines and driver assistance systems. Most companies have said that the disruption in vehicle supplies could last till at least 2022.
Soumitra Bhattacharya, MD, Bosch, recently told Business Standard that that shortage of chips will impact the car market till 2022. To cope with the chip shortage, carmakers are now leaving out high-end features, reported Bloomberg.
Not just the auto industry but consumer goods and smartphone manufacturers are also under pressure to meet the rising demand for products.
South Korean consumer durables and electronic products giant Samsung recently said that the chip shortage has hit its television and appliance production. Companies like Apple, LG and other Chinese electronic and smartphone manufacturing companies have also been severely impacted by the chip shortage.
But the problem is more widespread than it appears. While automakers and consumer electronic goods manufacturers have been worst affected, countless other firms have been impacted as all modern tech requires semiconductors.
DOES THE CHIP SHORTAGE IMPACT YOU?
Yes. The chip shortage directly impacts consumers as prices of everyday appliances and electronic goods — from TV to smartphones — have increased due to the global supply chain disruption.
Meanwhile, the shortage of semiconductor chips has forced carmakers to increase the prices of vehicles. In India, Maruti Suzuki hiked car prices recently due to the increased cost of production.
The hiked input cost may be a direct result of the global chip shortage. It won’t be surprising if other carmakers also increase the prices of their vehicles, given the shortage of chips.
As the situation stands, the global chip crisis is far from over and prices of many electronic goods and components could increase further 1 percent to 3 percent, according to Goldman Sachs.
While major chip manufacturing companies have announced investments to ramp up producing lines, analysts feel it would take at least two to three years to build the new semiconductor chip production plants.
Article Source: https://www.indiatoday.in
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