Semiconductor Shortage – A Tech Pandemic

For the past few weeks, there has been a buzz about the semiconductor crisis. This global chip shortage has left its impact on automotive, computers and mobile communications, consumer durables, and many other industries. What\’s worse is that this crisis is going to stay longer. So let’s delve further to understand what this buzz is about.

But what is a semiconductor wafer, chip, and IC?

Wafers are thin slices of semiconductor material (silicon) which is the main raw material in demand fabrication of integrated circuits (ICs). A set of ICs is called a chipset. A semiconductor chip is an assembly of electronic components such as transistors and wiring formed on a silicon wafer.

Demand ≠ Supply?

Now the vast majority of the rise in semiconductor demand is driven by products ultimately purchased by consumers such as laptops, smartphones, EVs & automobiles, and other durables. The rising demand for these items in the post-Covid era and pandemic-related disruptions in production have led to shortages and skyrocketing prices for semiconductors in the past two years.

This crisis is so severe that production is badly disrupted and wait time for chips is converting to queues across several industries. Here the worst hit is the auto sector where according to a Bloomberg report ‘The global auto sector stands to lose about $110 billion in sales due to production delays. In India companies such as Maruti Suzuki have already cut production by 60 percent at their plants due to a lack of chips supply.

What Next?

With the lack of this valuable resource upon which tech innovations depend, countries are in a race to develop their chip-making capabilities. Although the US is a world leader in the research and development of chips, Taiwan and South Korea with over 80% of the market share have emerged as leaders in manufacturing.

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Although the industry is grappled with a wide range of problems beginning from the fire at a plant in Japan hindering chip production to container shortage and supply chain issues, everyone has now started to feel the need to address the elephant in the room, i.e. the importance of finding a go-to solution to evolve as the next tech giant. While the US plans to invest capital to the tune of US$ 50 billion, India has also approved programs and provisions to incentivize semiconductor manufacturers. The Ministry of Electronics and IT has announced its capstone program ‘India Semiconductor Mission (ISM)’, extending benefits amounting to INR 76,000 crore, equivalent to US$ 10.13 billion, to semiconductor manufacturers.