The Global Semiconductor Crisis

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The COVID-19 pandemic has caused countless changes in the state of the world as we knew it even a year ago, and one of the most recent blights that it has inflicted is a worldwide shortage of computer chips – otherwise known as integrated circuits or semiconductors.

Microchips are basically miniaturized electronic circuits that are ‘printed’ on wafers of silicon (or sometimes, similar conductors of electricity), which then become the most integral parts of computers of any scale. And indeed, in the world of today, pretty much any electronic device contains at least an elementary-level computer, ranging from the most basic toys to the most complex artificial intelligence engines. Over time, these microchips have become more and more advanced with the inevitable march of technology, allowing the machines that use them to become more capable and affordable as well. Not only are semiconductors used as essential components in factories and industrial facilities, but they also see ludicrous amounts of action in consumer electronics as well. It is safe to say that the ‘modern’ aspect of the world of today stands on firm foundations laid by semiconductors.

The global semiconductor crisis has naturally resulted in the laws of economics coming into play, and anything with microchips in it is seeing a substantial price hike. The effects of this shortage is also leaking into other industries, such as the automobile sector, which is seeing production being halted at many levels. Many companies are being forced to slash their profit margins to keep prices manageable for their customers, because the alternative is to lose sales altogether. The increased prices are also keeping consumers from being able to readily afford electronics that were much easier for them to obtain before.

But what caused this crisis to come about in the first place?

To begin with, computer chips are extremely small, and the immensely (not to mention increasingly) complex nature of their hyper miniaturized designs have played an instrumental role in laying the foundations of the worldwide shortage. Because of this, semiconductors can only be manufactured in specialized factories known as ‘fabs’. These factories contain temperature- and humidity-controlled environments that are devoid of static electricity build ups or stray particles of dust, because any of these factors going awry can wreak havoc upon the delicate production process. As expected, creating these fabrication environments is time-consuming and prohibitively expensive, with costs ranging in the billions of dollars, and each one taking as long as two years to construct. Right now, every fab in the world is operating at maximum capacity, and new ones are not expected to be completed anytime soon. The wait may be as short as a matter or months or as long as a matter of years.

While the fab situation presented a formidable challenge to begin with, the fresh set of problems that appeared as a result of COVID-19 is nothing to sneeze at either. Upon seeing the nature of the global pandemic, most economists assumed that income levels of people would plummet because of mass unemployment, and they would curtail nonessential purchases as a result, resulting in massive drops in consumer spending. Based on this assumption, companies from various industries decided to rein back their production, and ordered fewer chips from semiconductor manufacturers, as they themselves were planning to manufacture lower numbers of products as well.

However, what the economists had not factored in was the fact that the millions of people who were stuck at home during the lockdown now suddenly had access to a surplus of money which they would otherwise have spent on travel or out-of-home recreational activities, which were rendered impossible by the pandemic. And when these very people started to buy televisions, computers, gaming consoles and other electronic gadgets, the entire consumer electronics industry panicked upon sensing the extra demand, and ended up buying every microchip on the market to meet it, The automobile industry’s case is especially unfortunate, as millions of near-complete cars are awaiting the arrival of their computer chips in their respective factories, simply because car companies happened to arrive too late to the semiconductor-grabbing party.

Several other factors have also contributed to the microchip crisis. Cryptocurrency mining is all the rage right now, as it has been for quite some time, and the amount of stress it puts on computer hardware tends to be rather destructive. Cryptomining requires the computer hardware – semiconductors, of course – to be run at maximum load indefinitely, which wears them out very quickly because of the constant heat that is produced by them during such heavy operations. Cryptocurrency mining is responsible for the destruction of countless warehouses worth of semiconductors. Other reasons that caused the shortage include the advent of state-of-the-art 5G phones, which notably contain more chips than their predecessors did. Since nearly 25% of smartphones sold in 2020 were 5G ones, this put a lot of extra strain on global chip production levels. Even politics came to play a role in the chip shortage, when then-POTUS Donald Trump decided to wage a trade war with China, prohibiting U.S. companies from selling to Chinese semiconductor titan SMIC, which produces nearly 10% of the world’s semiconductors.

It is interesting to note that while manufacturers and consumers are suffering because of the semiconductor crisis, the chip companies are not in much better positions either. While it can be argued that they can now sell chips at higher prices because of the increased global demand, they are already engaged in long-term deals with major companies, which have already been established and cannot be altered so easily. Perhaps the only companies who are really likely to benefit from this crisis are the handful of corporations that manufacture the highly esoteric and sensitive equipment used to fabricate semiconductor processes, such as Japan’s Tokyo Electron and U.S.A.’s Lam Research and Applied Materials.

It is safe to assume that the global microchip crisis isn’t going away anytime soon, because new fabs are unlikely to arrive over the next few months, and demand for chips is only going to go up with the rise of economic activity. However, it can be expected that new players would enter the global semiconductor industry as a result of this unusual development, and perhaps something good would come out of it after all in the end.

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