The world as we know it
is heavily reliant on electronic devices. In your morning routine alone, you'll
probably use your smartphone, your TV, your fridge, your coffee machine, your
car, and even your electric toothbrush. All of these things require
semiconductor chips to run—and we're currently experiencing a global shortage
of them.
These chips, which are built on silicone wafers, are so tiny and complex that
they cannot be made by hand. According to one of our reports here at Global Market Monitor, they're so versatile
that nearly every modern device makes use of them, and the demand for them is
so huge that they have to be produced in the trillions each year.
This dilemma poses the following questions: How did we get here? What does a
global chip shortage mean? And will there be far-reaching consequences?
COVID-19 and globalized production
To understand how the shortage started, we need to have a simple understanding
of how chips are made. To keep production costs down, manufacturers take
advantage of globalization trends by decentralizing production. This means that
one product is assembled through various stages at multiple factories across
the globe.
Semiconductor chips are no different. This in-depth report by the BBC explains that raw
materials for the chips are sourced from Japan and Mexico, and the chips
themselves are assembled in the US and China. Afterwards, they're shipped
elsewhere to be installed in various devices.
With the rise of the COVID-19 pandemic in 2020, however, came travel
restrictions that disrupted supply chains across the globe. And as the world
shifted to online means of communication—such as working from home and distance
learning, among others—the demand for electronic devices only increased.
These aren't the only factors that precipitated the shortage, however. Both
political tensions, such as that between the US and China, and unforeseen
disasters, like the burning of a major chipmaking center in Japan, have sorely
limited the capability of the industry to produce chips amid the pandemic. And
those who have access to chips are hoarding them, making it more difficult to
balance out supply and demand.
What it all means
Initially, only car manufacturers were affected by the lack of chips, but now
the shortage is affecting other industries, as well. This may mean that the
average consumer will feel the effects of the shortage soon, whether it be
through an increase in price or an actual shortage of a product. Indeed, an overview of Altium 365 highlights how up to 70% of a product’s
total cost is down to its electronic components—primary among them the chips
that form the brains of our devices. As engineers continue to optimize work
processes to boost design efficiency and improve supply chains, the very real
expense of the hardware will only continue to be a critical factor.
Intel, for example, is holding a helping hand out to electronic manufacturers in
North America and Europe by building two new chip factories, worth $10 billion
each, in Arizona, and, if they can pull public funding, one factory in Europe,
as well. These factories, however, will take at least two to three years to
become fully functional, and the shortage will continue to go on in that time.
Looking to the Future
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