Global Semiconductor Chip Shortages Continue into 2022: The Impact of Geopolitics, a Pandemic, and Supply Chain Failures
Consumers around the world have come to rely on the semiconductor chip in an increasingly digitalised environment. But since early 2020 the supply of chips has struggled to keep up with the rising demand for a variety of consumer goods and services, all of which rely on chips for their operation. Car production has slowed down or even halted, while supplies of video gaming consoles and smartphones have been exhausted.
The semiconductor chip consists of groups of miniaturised and integrated electronic circuits, each made up of numerous interconnected active and passive components (transistors or on-off switches, resistors, capacitors) that are linked together wires. Several layers of these circuits are formed on the surface of a silicon crystal wafer, which is referred to as a substrate, using a process known as photolithography. Silicon is a semiconductor, with an electrical conductivity which is intermediate between that of a conductor and an insulator and which changes with temperature. There are two main types of chips: logic chips process information, while memory chips store data. Since the initial invention of integrated circuits by Jack Kilby in 1958, the electronic component density on chips has increased exponentially according to “Moore’s Law”, which is considered a yardstick by which to measure technological progress. At the same time, wafer diameter has continued to increase, now reaching 300 mm. Today’s chips, while much smaller, are many times faster and more capable than their predecessors. Current chip manufacturing processes indeed employ nanoscale technologies, where a nanometre is one-billionth of a metre.
Semiconductor chips are ubiquitous. Within the home, a surprisingly large number of household appliances require chips to function, including refrigerators, washing machines, air conditioners, microwave ovens, even electric toothbrushes. Then come personal gadgets such as smartphones, personal computers (desktops, laptops, tablets), digital cameras, video gaming consoles (PlayStation, Xbox), and children’s toys. Outside the home, cars use chips for all kinds of functions, including battery management, control systems, digital safety displays, infotainment systems, assisted parking, and autonomous driving. In healthcare facilities, medical devices also make liberal use of chips. With technological advance, the demand is expected to increase both for smarter products that form part of the Internet of Things, and for such applications such as artificial intelligence and cloud computing, all of which require more chips per any single product.
Semiconductor chip production can in some ways be likened to a monopoly industry The US leads in semiconductor development, while chip manufacturing is dominated by Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea’s Samsung Electronics Company- TSMC being the world’s largest contract chip manufacturer. The setting up of silicon wafer-fabrication factories is a complex and expensive process, requiring a dust-free environment, ultra-clean-air circulation, controlled temperatures, and inevitably a skilled labour force, of which there is currently a shortage, all to be fitted up with personal protective equipment. ASML Holding NV, based in the Netherlands, is the only manufacturer of extreme ultraviolet (EUV) lithography systems that are used to etch integrated circuit patterns onto the most advanced of silicon wafers. Both China and the US are currently working towards microchip independence, thereby reducing their reliance on Taiwan and South Korea for domestic needs.
The production of semiconductor chips has been compromised for a number of reasons. Even before the pandemic, the rollout of 5G and cloud computing infrastructure began to put pressure on available stocks. Then came lockdowns, when computer sales took off and video conferencing platforms (Zoom) and video streaming services gained in popularity- to facilitate home-working, ecommerce and indoor recreation. At the same time, the demand for cars fell and car manufacturers, relying mostly on lean inventories for just-in-time ordering, failed to maintain sufficient reserves of chips. When orders for new cars started to recover in September 2020, automobile manufacturers were soon caught out.
Geopolitical factors have worsened matters, both from recent US-China trade wars and from long-standing tensions between Taiwan and China. In September 2020, the US Department of Commerce blacklisted Shanghai-based chip manufacturer Semiconductor Manufacturing International (SMIC), and the sale of semiconductors to Chinese firms such as Huawei Technologies and ZTE was restricted, encouraging the stockpiling of chips in China. Additional problems have been caused by shortages of highly purified electronic-grade silicon (made from silica sand) and transportation issues from a lack of shipping containers.
The semiconductor chip shortage will continue into 2022. Although the situation is expected to improve, the demonstrable fragility of global supply chains for chips in response to external shocks demands corrective action to improve resilience for the future, especially by diversifying the supplier base as well as supplier chains.
Ashis Banerjee