If you haven’t heard about the semiconductor shortages causing havoc around the world then you’ve been living under a rock for the last 14 months! More and more we’ve been hearing about this semiconductor shortage but many of us don’t know what exactly is a semiconductor and what it does, so let’s start by learning what is this little tiny tiny part that has put a halt to industries around the world.
What is a semiconductor?
A semiconductor is a tiny chip used by almost all the electronic gadgets we use on a day to day to function. In other words, is the brain of your electronic gadget. Washing machines, mobile phones, cars, vans, TVs, game consoles, computers, and other gadgets use a semiconductor chip.
What caused the semiconductor shortage
To name just one cause of the shortage would be a simple task, but the reality is there are several factors that have and still are contributing to the problem. Effects of the USA- Chinese tech war, COVID – 19 pandemic, and huge semiconductor demands have all contributed to the problem.
The shortages in semiconductors have been going on for a few years now, but the situation was made worse by the increase in demand for computers, mobile phones, and more electronic devices as we all started to work from home since the beginning of 2020 when the COVID-19 pandemic hit the world.
There is not an industry that hasn’t been affected by this shortage, however, the automotive industry has been particularly affected hard and rumors tell the situation will not get better soon.
Semiconductors and the automotive industry
As I pointed above, semiconductor chips are used in almost all of the electronic gadgets we use on a day to day, companies spend billions on these tiny chips and sales are on a “first come” basis.
In early 2020 when the automotive industry slowed down due to the COVID pandemic, semiconductors orders decreased. Whilst companies such as Apple and Samsung kept orders going even though postpones product launches, the automotive industry was left at the back of the queue when the time came to reintroduce orders.
“Car manufacturers, who cut chip orders as vehicle sales fell last year, found themselves at the back of the queue when they tried to reorder when the market rebounded. The entire global car industry buys about $37bn worth of chips, with the biggest players such as Toyota and Volkswagen spending more than $4bn each, making them relative minnows for semiconductor suppliers.” Source: The Guardian
“The worst affected have been autos because they were last to the party; if Apple is spending $56bn a year and growing who are you going to keep supplies going to first?” Source: The Guardian
“As car sales bounced back at the end of last year, carmakers quickly found there were not enough chips to meet their needs. The complex automotive supply chain also tends to work on a low inventory basis, with many suppliers in between chipmakers and carmakers.” Source: South China Morning Post
Ford in particular has had to close its Turkish factory for two months and canceled shifts in two car plants. They said profit could be hit by £2.5bn this year, while Nissan is idling outputs in their Mexico and US plant.
What does a semiconductor do?
Semiconductor chips are complex to the manufacturer. There are hundreds of types depending on their function and gadget. In cars and vans in particular these can govern anything from engine management to windows, airbags, infotainment, ABS, lights, and safety features. The amount of semiconductor chips a modern car or van uses is increasing, making their manufacturing even more important and demand even higher.
What’s next for the semiconductor shortage
As it stands there are 30 semiconductor manufacturers in the world, if we think of how many mobile phones there are in the world, how many TVs, how many washing machines, how many cars and vans, we can grasp the huge logistic and manufacturing capabilities these 30 manufacturers have to have to supply the planet of semiconductors.
One day of delay or not production can throughout a huge shortage of parts, now imagine the effects of closures due to COVID-19. The demand simply outstrips supplies.
As of when this post was written there isn’t a clear vision of when the shortage will be resolve. There are talks between governments aiming to resolve the situation, but for now, we just going to have to wait to see how supplies catches with the demand.
