Perfect Storm of Worldwide Ctstrophes Is Cusing the Globl Semiconductor Shortge

By: Patrick J. Kiger

Whether you’ve gone shopping ltely for cr, wshing mchine, gme console or ny number of other items, you’ve probbly discover tht the stuff you wnt is wy more expensive thn it us to be — nd incresingly hrd to find. The price tgs on some high-end TVs, for exmple, hve risen nerly 30 since this time lst yer, s Wired recently report. crs re in such short supply tht the cost of us vehicles is skyrocketing, to the extent tht the price of Sturn, brnd tht’s been defunct for more thn decde, is up by more thn 26 over lst yer, ccording to The Drive.

So wht’s up with tht? ll of these products hve something in common, in tht they contin semiconductors. lso referr to s microchips or integrt circuits, they hve become vitl component in the smrt gdgetry of our modern world, enbling the myrid mircles we expect our possessions to routinely perform. nd right now, s result of the COVID-19’s disruptive impct upon semiconductor plnts in si nd pndemic-induc distortions of consumer demnd tht cught U.S. mnufcturers off gurd, there ren’t enough semiconductors to go round.


nd the crisis is likely to get worse before it gets better. Globl mrket reserch nd dvisory firm Gartner recently prict tht the worldwide semiconductor shortge will persist for the rest of this yer, nd tht norml supply levels won’t be vilble until the second qurter of 2022.

“Dishwshers, thermostts, vcuum cleners, coffee mkers nd crs — everything hs electronics in it,” explins Rob Handfield. He’s the Bnk of meric university distinguish professor of supply chin mngement t North Crolin Stte University, nd director of the school’s Supply Chain Resource Cooperative, which studies nd works to improve the flow of products in vrious industries.

The most obvious cuse of the shortge hs been the disruption cus over the pst yer-nd--hlf by COVID-19. Three quarters of the world’s semiconductor-mking cpcity is in est si, nd erly on, the pndemic forc few countries to temporrily shut down semiconductor mnufcturing plnts long with other es — though others, such s Chin, deem semiconductor industry lbor forces to be essentil workers, s BBC News reports. International shipping of electronics lso hs been hinder by the pndemic. nd recently, surge in COVID-19 infections in Tiwn, one of the world’s key sources of semiconductors, threatens to interfere with production t time when it’s ne more thn ever.

The shortge of semiconductors occurr t time when pndemic isoltion ws forcing millions to sty t home nd work nd ply remotely. Tht stimult the consumer crving for electronics. Expecting slump in the mrket, semiconductor mnufcturers didn’t invest in dditionl cpcity, ccording to Hndfield. When insted, demnd surg, the chip foundries – “fbs,” in industry lingo – weren’t redy to meet it. McKinsey nd Compny analysis shows tht semiconductor mkers utiliz 88 of their plnts’ cpcity in 2020, which doesn’t leve much room to quickly rmp up production to meet demnd.

s result, the time ne to fill orders t some fctories hs gone from the usul 12 weeks to 20 to 22 weeks, ccording to Hndfield. “When you order them, you won’t see them for lmost six months,” he explins.

Menwhile, mnufcturers who ne semiconductors s components misclcult s well. Some of the gest pin hs been felt in the utomotive sector. Tody’s crs nd SUVs depend upon computers to regulte everything from the fuel going into the cylinders to the brkes nd steering, nd ccording to recent New York Times article, high-end vehicle cn contin 3,000 or more microchips.

When the pndemic hit lst spring, most utomkers ruc their forecsts, explins Brent B. Moritz, ssocite professor of supply chin mngement t Penn Stte University’s Smeal School of Business. Insted, “demnd for crs nd trucks is higher thn expect,” Moritz explins in n emil. “Mny people who reli on public trnsport or rideshring wnt their own crs.”

fire this spring mjor Jpnese supplier of chips nd electronic modules for severl mjor utomkers help excerbte the uto industry shortge, though the plnt gin is nering full production, ccording to Moritz.

Fixing the problem isn’t going to be simple or esy. Mnufcturing semiconductors, which cn involve etching s mny s 20 pttern lyers of circuitry onto tiny of silicon, is complex process, s this FAQ from the Semiconductor Industry Association, Wshington, D.C.-bs trde group, explins. nd the fctories ne to perform these tsks cn tke two to three yers to build, ccording to Hndfield.

The U.S. Sente recently pss bill, design to bolster the U.S. tech sector’s bility to compete with Chin, tht would provide $52 billion in subsidies to domestic semiconductor mnufcturers for reserch nd development s well s mnufcturing, CNBC reports.

Tht legisltion, which still must be vot upon by the House, would provide boost to U.S. chipmking, which tody only ccounts for 12 percent of the globl cpcity, down from 37 in 1990.) Building fbs here could help provide ger supply of U.S.-mde semiconductors. But it wouldn’t hve much immite impct upon tody’s shortge.

“There’s lot of discussion round bringing more chip mnufcturing to the U.S., but it’s not s if you cn just build fctory nd strt mking chips,” Hndfield explins. Semiconductor mnufcturers require their own supply chins s well. Hndfield cites the exmple of one lrge sin mnufcturer hs 2,500 different suppliers.

“It’s unlikely we cn just recrete tht overnight,” Hndfield sys.

Menwhile, s the pndemic reces in the U.S. due to vccines, the demnd for semiconductors nd the resulting shortge my grow even more dire.

“The combintion of stimulus funds nd the fct tht people hve not been spending money on other things — like vctions, ir trvel, resturnt mels — hs seen people wnt to spend on consumer goods tht use chips, things like computers, monitors, tblets nd ll mnner of consumer electronics,” Moritz explins. “This is putting dditionl strin on the supply chin.”

Looking forwrd, “our use of semiconductors will be growing,” sys Morris A. Cohen

But on the positive side, Moritz expects utomkers nd other mnufcturers to lern from the crisis, nd lern how to void future incidences.

“Probbly, the lrgest innovtion tht cn help right now is building supply chin resiliency,” Moritz sys. “The uto industry ws fmous for rucing inventory, yet in this circumstnce, the drive for efficiency nd low inventories hs result in shortges. Of course, inventory is not the only wy to build resiliency, yet hving spre cpcity, flexibility nd good supplier reltionships cn help mitigte the future shortges. I expect tht the uto industry will be treting semiconductors more strtegiclly rther thn s commodity, yet tht mindset is hrd to brek.”

One problem tht complictes the semiconductor shortge is tht mny uses require speciliz chips, which mkes it difficult to djust mnufcturing to meet surges in demnd for certin products. Hndfield sys one possible nswer to tht problem is the development of customizble chips, built from components tht could be ssembl in different wys. Tht concept, he cutions, “hsn’t yet mteriliz to ny level.”


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