Saturday, 13 August, 2022

Worldwide Microchips Shortage – Why Should You Be Concerned?

A K Ziauddin Ahmed

US president Joe Biden visited a Samsung semiconductor plant in South Korea on 20th May 2022 during his first Asia trip. That underlines the importance of semiconductors in today’s world. Also, we have been watching the news about the worldwide shortage of microchips since the middle of 2020 after the pandemic began.

So, what are these microchips? Well, the dictionary meaning of the word is a small piece of semiconductor material carrying many integrated circuits. An example of a semiconductor material is silicon. Microchips can be thought of as small pieces of silicon, containing electronic circuits built with transistors. A microchip of the size of a quarter dollar coin in the United States, that is, an area of approximately 0.72 square inches, can be packed with up to tens of billions of transistors. A computer processor or a smartphone processor are all microchips.

Most of the electronic devices today contain microchips. Microchips are used in aircraft, spaceships, cars, robots, TVs, washing machines, smart watches, game consoles, medical equipment, and so on. Microchips are also used in military weapons such as drones, guided missiles, helicopters, fighter jets, vehicles, and electronic warfare equipment.

It’s therefore easy to guess how large could be the worldwide demand for microchips and how fast they could be growing with time. An idea of the size and growth of the worldwide microchips market can be gathered from the Semiconductor Industry Association Factbook 2022 where it has been mentioned that the worldwide semiconductor sales increased from $139.0 billion in 2001 to $555.9 billion in 2021.

So, who are the producers of these precious microchips? According to an article by Govinda Bhutada published in Visual Capitalist Datastream in December 2021, companies in Taiwan, South Korea, and China account for 87% of the world’s microchip production. The country-wise breakup is as follows:

A single company in Taiwan, TSMC, short for Taiwan Semiconductor Manufacturing Company, accounts for 54% of the world’s microchip production. It supplies microchips to Apple, Intel, and Nvidia. Now, we can imagine what would happen to the production of iPhones, Intel processors, and Nvidia graphics cards if the Taiwanese supply of microchips is disrupted. We can also understand why the USA is so serious about maintaining a positive relationship with Taiwan, including offering it military assistance causing tension with China. Interestingly, the USA officially withdrew its recognition of Taiwan as a sovereign country in 1979 which should imply that it concedes the Chinese demand that Taiwan is a part of China.

The world’s second-largest company for microchips is Samsung which accounts for 17% of the world’s microchip production. That explains why US president Joe Biden visited a Samsung semiconductor plant in South Korea on 20th May 2022 during his first Asia trip

So, what’s the cause of this ongoing shortage of microchips? The simple answer, the production capacity is unable to feed the huge growth of demand. Also, there were disruptions in production due to the pandemic. The demand is growing like anything. More and more products are getting digitalized and connected to the internet. Newer uses of microchips are emerging every day. The introduction of 5G surged the demand for microchips in mobile devices and who knows what’s coming next.

From the uses of microchips, it is obvious that the effects of its shortage would be felt almost everywhere – from personal life to business and the economy. Manufacturers of various electronic gadgets, home appliances, cars, etc. would have to cut down their production causing a shortage of supply of their products in the market and consequent price hikes affecting the consumers. Also, at factory levels, it will cause layoffs and redundancies.

According to an article by Sam Shead, titled ‘The global chip shortage is starting to have major real-world consequences’ posted on the CNBC website on May 7, 2021 companies like Ford, Volkswagen, and Jaguar Land Rover had shut down factories, laid-off workers and slashed vehicle production. This is because the automotive sector relies on chips for everything from the computer management of engines to driver assistance systems. But how long will this situation continue and why the microchip producers are not expanding their capacities to meet the increased demand?

According to Intel CEO Pat Gelsinger, the semiconductor industry would suffer supply shortages until 2024. He told in an interview with CNBC that the estimate was a change from an earlier estimate of continuing shortage till 2023 and it was due to constrained availability of key manufacturing tools for expanding capacity levels. That explains why the factories are not simply expanding their capacities to meet the increased demand.


The writer is a retired

government officer