Sunday, August 14, 2022

How Digital Transformation Led to the Global Semiconductor Shortage

How Digital Transformation Led to the Global Semiconductor Shortage

The COVID-19 pandemic altered the dynamic on a global scale, hitting all sectors and industries, be it public or private sectors. The overtake of the pandemic entered the world in a digital revolution no one had forecasted. Digital transformation directed the societies and industries towards a hasty adaptation of the new norm, altering every dynamic to accommodate the sudden technological development expanding in every sector. With the expeditious digital evolution, a contemporary crisis arose, one no one saw coming. The semiconductor shortage hit all industries as digital transformation drove chip manufacturers to accelerate their production as the demand intensely increased, creating a shortage in supply. How digital transformation led to the global semiconductor shortage can be branched for a variety of reasons. Yet, the most prominent one remains the heavy storm of failing to meet the high demand with an appropriate supply chain.

Digital Transformation in the Semiconductor Industry

While the COVID-19 pandemic is deemed the main perpetrator of the global semiconductor shortage, causing a detrimental disruption in the demand and supply chain, digital transformation has a significant role to play in both aspects. The pandemic has pushed establishments worldwide to break the barriers between traditional and digital approaches, transforming how industries conduct their businesses forever.

COVID-19 accelerated the adoption of digital technologies by almost a decade, causing disarray in an industry relying on the suppliance between chip manufacturers and their customers. Digital transformation pushed companies to implement fast changes into their business models to keep pace with the accelerated global digitalization to guarantee a stronghold in a competitive market.

The global semiconductor crisis came to be a phenomenon that could bring economies and businesses to their demise, with numerous companies failing to meet their annual targets due to the chaotic disturbance in the demand-supply chain. To break the chain, drastic modifications need to be implemented to each company’s digital transformation strategy, tailored to meet the market’s needs, with fundamental technological goals to meet the hasty pace of digitalization.

The pandemic faced semiconductor manufacturers with challenging market demands that meant releasing a wide range of new products, accelerated tryouts with less time during the research and development (R&D) phase, automation, and accelerated data analysis. With the global adoption of digitalization, such operational changes on a massive scale left digital transformation in a state of paralysis due to disruption attributed to the pandemic.

The Semiconductor Shortage Reason

Economized supply and inflated demand. The global semiconductor shortage shut down operations in almost every industry, riding the wave of digital transformation following the world’s recovery from the COVID-19 pandemic. While there is an extensive list of reasons that birthed the crisis, what is causing the semiconductor shortage exceeds what we see on the surface. 

The accumulation of problems deriving from the industry itself intensified the snuffiness of semiconductor capacity in the manufacturers’ labs, forcing establishments to cut down on their orders for at least a year. The global demand for chips – which was already unsteady even before the pandemic – was driven by the rise of digital transformation based on the growth of new technologies. Cloud services, the introduction of 5G networks, and more required a spearhead on competition, which in return increased the pressure on chip manufacturers to meet this demand.

The introduction of the Internet of Things (IoT), as well as smartphones, smart cars, and others, heightened the market’s need for chips for a wide range of industries.

Why is the Semiconductor Shortage Getting Worse?

The initial reason for how digital transformation led to the global semiconductor shortage is escalating and can be associated with the businesses’ slashing of their prices during the pandemic, with the hopes to resume production after the pandemic wears off and the world returns to its norms. Yet, one thing was not taken into account. This approach to managing their sales flow throughout global lockdowns heavily contributed to intensifying the crisis, despite now being back in production.

Chip manufacturers voiced their concerns on the matter as they expected the global semiconductor crisis to persist into 2023. The reduction of the prices to maintain consistent orders heightened the pressure on chip manufacturers to deliver more chips to a broad range of companies after the recovery from the COVID-19 effect.

The problem itself is more systematic and between two parties only, with one attributing to the cause more than the other. Maintaining a specific manufacturing capacity was deliriously hit well after the pandemic, and the situation resonated to meet the market’s demand. The forcefulness of the crisis will remain unless drastic changes are made to address the backlog of orders and weigh the intensity of the market’s high demand.

Summary

As the COVID-19 pandemic transpired, so did the market’s demand for chips. A demand driven by industries’ modification of their business strategies to meet the global criteria of digitalization. As the need accommodated digital transformation, tech companies increased orders and stocks of semiconductors to mee the new life accelerated by technological advancements and innovations. A demand almost fractured a whole industry as the pressure intensified with the rise of 5G, consumer demand for smart devices and laptops, and others. Chip manufacturers were particularly hit by this, as they faced delays in manufacturing semiconductor chips due to the global pandemic forced adaptation to digital transformation.


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