Semiconductors are a key component used in countless gadgets and daily-use electronic appliances. (Photo: Reuters)
They enable key functions such as high-end computing, operation control, data processing, storage, input and output management, sensing, wireless connectively and more.
Therefore, these chips are integral to all emerging technologies such as artificial intelligence, quantum computing, advanced wireless networks, blockchain applications, 5G, IoT, drones, robotics, gaming and wearables.
Semiconductors chips are inexpensive parts that play a key role in manufacturing modern technology products and components. Simply put, semiconductor chips are the building blocks of modern computation.
Some Facts about semiconductor chips:
*Semiconductors are made primarily using silicon
*All modern tech products and components require semiconductors — from smartphones to vehicles
*Some popular companies that manufacture semiconductor chips are Intel, Samsung, Taiwan Semiconductor Manufacturing Company (TSMC), Qualcomm, Broadcom and Nvidia
*With advancements in technology, semiconductor chips are literally the backbone of many essential industries ranging from healthcare to agriculture
*Production of such chips can involve more than 1,000 steps and multiple country border crossings
*US is the leader in terms of R&D activities in chips, while Taiwan leads the way in the assembly, packaging and testing functions of semiconductors. A vast majority of the world’s chips are manufactured in China.
WHAT’S BEHIND THE GLOBAL CHIP SHORTAGE?
The shortage first emerged after the Covid-19 pandemic devastated most countries in the world in 2020, leading to widespread restrictions. Although the impact was not felt due to lower demand for goods during the pandemic, the situation has changed drastically.
While demand for electronic goods across various segments catapulted, companies have been unable to deliver due to the chip shortage.
Some key reasons behind the global chip shortage are supply chain disruptions due to the pandemic, a sharp rise in demand for electronic goods as more people are now working from home and lack of investment in chip building capacities.
Several reports indicate that the chip shortage may not end before 2022 as supply disruptions due to ongoing Covid restrictions may continue for at least a year.
Patrick Armstrong, CIO of Plurimi Investment Managers, told CNBC.com that the chip shortage could last at least 18 months before the demand-supply equation normalises.
Experts feel that countries will have to ramp up investments considerably in chip building capacities to resolve the ongoing crisis.
INDUSTRIES AFFECTED
Countless industries have been affected as global demand for semiconductor chips continue to outstrip supply.
Globally, vehicles makers have been worst hit by the chip shortage with major car manufacturers like Volkswagen, Ford, Renault, Nissan and Jaguar Land Rover are feeling the heat.
All these companies are likely to lose billions due to the shortage of chips, which are used in many car components such as digital speedometers, infotainment systems, computerised management of engines and driver assistance systems. Most companies have said that the disruption in vehicle supplies could last till at least 2022.
The shortage of semiconductor chips has severely affected the global automotive industry. (Photo: Reuters)
Soumitra Bhattacharya, MD, Bosch, recently told Business Standard that that shortage of chips will impact the car market till 2022. To cope with the chip shortage, carmakers are now leaving out high-end features, reported Bloomberg.
Not just the auto industry but consumer goods and smartphone manufacturers are also under pressure to meet the rising demand for products.
South Korean consumer durables and electronic products giant Samsung recently said that the chip shortage has hit its television and appliance production. Companies like Apple, LG and other Chinese electronic and smartphone manufacturing companies have also been severely impacted by the chip shortage.
But the problem is more widespread than it appears. While automakers and consumer electronic goods manufacturers have been worst affected, countless other firms have been impacted as all modern tech requires semiconductors.
DOES THE CHIP SHORTAGE IMPACT YOU?
Yes. The chip shortage directly impacts consumers as prices of everyday appliances and electronic goods — from TV to smartphones — have increased due to the global supply chain disruption.
Meanwhile, the shortage of semiconductor chips has forced carmakers to increase the prices of vehicles. In India, Maruti Suzuki hiked car prices recently due to the increased cost of production.
The hiked input cost may be a direct result of the global chip shortage. It won’t be surprising if other carmakers also increase the prices of their vehicles, given the shortage of chips.
As the situation stands, the global chip crisis is far from over and prices of many electronic goods and components could increase further 1 per cent to 3 per cent, according to Goldman Sachs.
While major chip manufacturing companies have announced investments to ramp up producing lines, analysts feel it would take at least two to three years to build the new semiconductor chip production plants.