Tuesday, September 27, 2022

The Shortage of Semiconductors in a Nutshell

Semiconductors power the modern world. They are tiny chips that hold the key to components in every electronic device we use today. Fridges, washing machines, laptops, cellphones, cars, and even military equipment and countrywide power grids are powered by a bit of chip no bigger than a toddler’s fingernail. 

Even the machines that produce semiconductors need semiconductors to function. 

Needless to say, a global shortage of semiconductors is a big deal, and it goes beyond the lack of PS5 on the market. 

If technological transformation and digitization are the bloodstreams that nourish the world, then semiconductors are the heart that pumps them. Anything that needs electricity to pass through in order to work needs a semiconductor inside it. 

Some companies like Intel, Hitachi, and IBM design and manufacture their own semiconductor chips. These companies are referred to as Integrated Device Manufacturers (IDMs).

However, the vast majority of companies have adopted a method of outsourcing the manufacturing of their semiconductors. 

Micro, Sony, Apple, QUALCOMM, AMD, and Nvidia all design their own chips but outsource their manufacturing to a single company, Taiwan Semiconductor Manufacturing Company (TSMC). Given today’s political climate, this puts the shortage of semiconductors at the center of global affairs. 

Former U.S. President Donald Trump’s trade war with China has further strained supply lines that were already stretched thin. Political tensions between China and Taiwan have also put tech giants and global governments on edge, now seeking to diversify their supply or at least develop alternates in case of supply chain disruptions. 

This means that both China and the U.S will have to bring chip manufacturing closer to home. Still, until then, the semiconductor industry may be vulnerable to geopolitical power plays and supply chain disturbances. 

Having most of the world’s semiconductors coming from a tiny island off the coast of China, Taiwan puts that island at the center of a global struggle, whether they like it or not. 

How Did the Semiconductor Shortage Get so Bad? 

Blame the Covid-19 pandemic for the crisis escalation. When people were forced to stay home, they were also forced to kit out their homes with all kinds of new and improved tech. People went to work, and kids on their laptops and phones went to school. They entertained themselves with movies and videogames. They completely upgraded their homes with all types of new tech to accommodate their unexplored home lifestyle, and this only accentuated the semiconductor problem. 

Businesses were moving online and needed more cloud infrastructure. While this was going on, the overall demand for chips was only increasing. The automobile industry is at the top of the list as modern cars need a greater number of chips to run their complex computer systems. 

Some analysts expect the shortage of semiconductors to persist well into the 2020s, or at least until 2023. What is certain, however, is that demand will only increase. IoT products will continue to see widescale adoption; 5G cell towers and 5G enabled cell phones will be hitting the market.