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GLOBAL CHIP SHORTAGE Update: These are the latest developments on the chip shortage

| Updated on 15.09.2021Author / Editor: Luke James / Nicole Kareta

The ongoing chip shortage has had an impact on virtually every industry, sending traumatic ripples throughout global supply chains. From automobiles to games consoles and power supplies to graphics processing units, very few have been left unaffected. Here’s a look at the latest developments.

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The worldwide semiconductor shortage is expected to last until Q2 2022 at the earliest. This article will keep you up to date on the latest developments.
The worldwide semiconductor shortage is expected to last until Q2 2022 at the earliest. This article will keep you up to date on the latest developments.
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COVID-19 has caused problems for virtually every supply chain around the world. Long before the pandemic, however, the semiconductor supply was extremely fragile and inflexible. Over the last few years, a series of problems, along with the impact of the pandemic, has caused a chip shortage that is having a severe global impact.

From trade wars and geopolitics to natural disasters and a materials shortage, semiconductor production has been decimated and chipmakers are facing major woes as a result. This is all taking place while major countries and companies are in the race to lead global chipmaking. However, today’s chip market is extremely volatile, and this will continue to have an impact on chipmakers and lead to shortages for years to come.

Global chip shortage - new updates

How are companies responding to the chip shortage and what are policymakers commenting? Here we sum up the most important events related to the global chip shortage.

Chip shortage could last into 2023, says Daimler boss

The chip shortage that is currently strangling global car production could continue into 2022 and even 2023. This is according to Daimler chairman Ola Källenius, who is also the head of Mercedes-Benz. While the auto industry staged a quick recovery from the COVID-19 pandemic, it has been failing to meet demand from customers.
The chip shortage has already caused several shutdowns of car making facilities around the world, including in Germany, the U.S., the UK, and Malaysia. "Chip producers say this will bleed into 2022 from a structural point of view and then gradually get better," he said, speaking to the BBC.

While Källenius acknowledged that this could mean shortages last into 2023, he is hopeful that they won’t be at the same level of severity that we’ve witnessed this year. He added that while Covid had been a “traffic jam” for the car industry and that it will take a while to get things moving at pre-pandemic speeds again, the fast recovery of the car market is good news for the industry on the whole despite current disruptions.

Chip shortage continues as more plant closures and order backlogs hit automakers

Chip manufacturers are continuing to struggle in the wake of pandemic- and natural disaster-led disruptions, with a cascade of factory closures across Asia, Europe, and North America exacerbating the shortage and preventing automakers from getting on top of their order backlogs. To make matters worse, continuing problems in global shipping and supply chains are adding further pressure and dragging out delays.

Recent estimates of the likely impact on car production because of the shortages have increased dramatically over the last few days. According to the latest survey by AutoForecast Solutions, 9.5 million vehicles may be lost because of the ongoing problems. This is almost 1 million higher than predictions made last week.

Automakers are beginning to worry that the trend could become longer lasting or even permanent as chip manufacturers cut production of automotive chips and prioritize more lucrative tech and telecoms chips. Even Toyota, which has been less affected by the shortage due to its close ties with suppliers, is starting to feel the pinch. The Japanese car maker was forced to cut its annual output target by 3 % on Friday due to factory closures in Malaysia.

Things aren’t looking good in the U.S., either. Ford and General Motors have reduced shifts at multiple factories nationwide in August and September. This translates to a huge drop in sales, with Ford reporting a 33 % drop in August compared to last year.

Background to the chip shortage - how it all began

It’s safe to say that a lot has gone on between the start of the chip shortage and the present day. While the chip shortage is considered to have “officially” started in 2020, several key events in the years immediately prior to 2020 significantly contributed to the problems chipmakers now face.
Below is a very brief breakdown of the key events that have taken place since the start of the U.S.-China trade war in 2018 and the present day.

2018 and 2019: Trade wars cause supply chain uncertainty

Since 2018 during the Trump Administration, a politically motivated trade war has existed between the U.S. and China. “The trade war took direct aim at Beijing’s ambitions to become a leader in advanced manufacturing technologies such as semiconductors and electric vehicles," wrote Josh Zumbrun in the Wall Street Journal in May 2021.

Even prior to the pandemic, this de facto trade conflict led to a great deal of turbulence and uncertainty for chipmakers and added to the concerns of analysts that geopolitics could severely hinder manufacturing and distribution.

The first round of U.S. trade tariffs hit Chinese imports in 2018 and focused on raw materials such as silicon. Tariffs like this had a ripple effect and led to a shortage of 8-inch wafers in late 2019. This shortage continues today and has had a severe impact on the automotive industry. Other tariff-induced problems were supply chain problems for foundry equipment and increased end-product demand.

Over time, the U.S.-China trade tensions led to the hoarding of wafer supplies when the U.S. blacklisted China’s SMIC in 2020. With so many key parts of the chip supply chain hindered, U.S. industries reliant on semiconductors—which is virtually any that produces anything electrical—were concerned that restrictions on Chinese imports would force China’s hand and lead to the development of their own semiconductor manufacturing ecosystem. And that’s exactly what happened.

Tensions also escalated in late 2019 when the Chinese government announced that a $75 billion tariff would be placed on U.S. goods. While an agreement between the U.S. and China was made in 2019 that included changes to China’s trade regime, this was later shrouded with uncertainty. By the end of 2020, China and the U.S. had only achieved 58 % of targets for U.S. exports to China under phase one of the agreement. The Peterson Institute for International Economics said China had "failed spectacularly" to meet its import targets, adding that the deal was for the most part a failure.

Then along came the COVID-19 pandemic. This added a whole new dimension of problems for the chip market.

2020: COVID-19 decimates chipmakers

The pandemic played a huge role in the chip shortage. According to several analysts, including Glenn O’Donnell, the vice president research director at Forrester, this was largely due to skyrocketing demand for cloud computing services from providers like Microsoft Azure and Amazon Web Services. “They [the service providers] buy a lot of chips,” he said in a blog post.

“Mobile phone sales remain hot. Makers like Apple, Samsung, and Huawei buy lots of chips. PCs are hot … Piled atop all that is a shortage of GPUs and other chips gobbled up by cryptocurrency gluttons. Demand is hotter than ever, and it's only getting hotter,” he added. Essentially, anything that’s got a power supply or a battery requires chips to work.

Owing to this demand surge, industries had to scramble to meet supply and demand in a highly uncertain and volatile economic climate. For chipmakers, production was halted for almost half of 2020 due to government shutdowns and COVID-19 restrictions. This piled onto the shortage to such an extent that by the time production resumed, semiconductor companies were well behind and had to adjust to severe demand pressure from various sectors.

The automotive sector was the prime example of this. It was a huge demand surge as consumer purchasing behavior shifted in the second half of 2020. As economies began to re-open, consumers dodged public transport due to the pandemic and started purchasing their own vehicles. This shifted the focus from consumer electronics and to automobiles, causing shortages in 8-inch wafers and ABF substrates necessary for automotive semiconductors. This was made worse by a fire at Japanese manufacturer Nittobo’s plant in July 2020. In response, Volkswagen, Ford, and Toyota, among others, cut, and in some cases completely halted their production in some factories, at a time when the automotive sector was booming.

In October, another fire broke out at the Asahi Kasei Microdevices (AKM) plant in Japan. This severely damaged the production plant and put it out of operation, forcing the company to work with a third-party manufacturer until the AKM plant’s operations could be restored. This caused problems in the market which caused prices to shoot up in the days following the fire as customers stockpiled supplies to safeguard their own supply chains.

2021: Natural disasters strike

After an incredibly difficult 2020, industries were hopeful that 2021 might offer a reprieve as countries began to recover from the COVID-19 pandemic and the automotive industry began to rebound. However, shortages continued to get worse with more demand growth, an ongoing shortage of raw materials, and unforeseeable catastrophic events. In Q1, the end-customer supply for key components was very tight. The shortage had caused a fall in growth and manufacturers were left fighting over scarce resources.

These problems were exacerbated by an earthquake in February which hit the Renesas Naka factory in Japan. This caused a blackout that suspended production. While the repercussions of this were relatively small, the factory was dealt a second blow when a fire broke out in March. This impacted a building where two-thirds of the company’s wafers for automobiles were produced, causing yet more problems for automakers.

Meanwhile in Texas, widespread power outages caused by storm Uri led to rolling blackouts. Manufacturers like Samsung, Infineon, and NXP Semiconductor were all forced to suspend their plant operations. To add to all the chaos, a drought in Taiwan, the country’s worst dry spell in half a century further threw chip production into disarray. This is because wafer fabrication requires large quantities of water for the production process.

Looking to the future

While it’s true that some of the big chipmakers are being proactive—Intel plans to spend more than $20 billion building new semiconductor factories in the U.S. and TSMC says that it will spend $12 billion on a new factory in Arizona—it’s going to be a few years yet before these plans come to fruition and they do nothing to quell the short- to medium-term problems causing the shortage. In the long-term, however, these and other projects in the pipeline should do a lot to meet future demand.

In May, Gartner analysts said they expect the worldwide semiconductor shortage to last until Q2 2022 at the earliest. By the end of the year, it’s hoped that the industry will start to balance out with more capacity. In the meantime, however, all that can be done to address the shortage is end-customers adjusting their production schedules to account for the disruption.

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