Dreamstime Images
Dreamstime L 84730298 6026d1727c45c

Recent Shortages in the Semiconductor Industry

Feb. 12, 2021
In 2020, the global electronics industry endured unprecedented disruption due to the coronavirus pandemic. Unfortunately, a new crisis has already emerged in 2021: the worldwide semiconductor shortage.

In 2020, the global electronics industry endured unprecedented disruption due to the coronavirus pandemic. Ultimately, the sector proved resilient to the challenges presented by COVID-19 by helping the world embrace digitalization.

Unfortunately, a new crisis has already emerged in 2021: the worldwide semiconductor shortage.

The problem began in the auto industry, but the integrated circuit (IC) supply crunch quickly intensified, expanded and evolved into a global calamity because of the field’s interconnected nature.

Consequently, the supply crunch disrupted the operation of multiple leading auto manufacturers and personal electronics conglomerates. This worldwide shortage has left many companies scrambling to secure chip orders and seek new avenues of component procurement in the midst of the shortage. Request for quotes (RFQs) are at an all-time high right now as professional buyers look to negotiate pricing and availability to meet production timelines.

In response, chipmakers, foundries and government leaders alike are working aggressively to resolve the crisis and address its root causes to prevent related problems in the future.

What You Need to Know About Shortages – LEARN MORE

Status of Worldwide Electronic Component Shortage

Late last year, Daimler, Fiat Chrysler, Nissan, General Motors, Honda, Toyota, Mazda, Subaru and Volkswagen cut production or temporarily closed factories because of the component shortage. Most recently, Ford made headlines for reducing assembly work on its best-selling F-150 pickup trucks at two of its plants.

IHS Markit recently predicted automobile production would fall by 700,000 units annually this quarter.

Bloomberg estimated the vehicle chip supply crunch would cost the sector $61 billion in lost revenue. However, industry insiders anticipate the impact on the global consumer electronics segment will be even worse.

Recent indications from other market segments show how the shortage is spilling over into related verticals and causing a similar squeeze on production lines. In turn, professional buyers have become even more strategic in searching out new tools for quoting component pricing and availability.

Apple recently revealed the shortage prevented it from assembling enough iPhones to meet demand. Samsung has warned that the part scarcity could curtail its ability to manufacture smartphones. Lenovo recently stated the production of its hugely popular personal computers had been affected by the crisis. And Sony indicated the supply bottleneck would prevent it from meeting demand for its recently launched PlayStation 5 video game consoles.

How the Automotive Chip Shortage Became a Global Semiconductor Crunch

The automotive chip crunch began in late 2020 after the worldwide car market recovered faster than expected.

The timing of the segment’s recovery proved problematic because new car sales plummeted in early 2020. As people settled into the pandemic, the need for transportation was drastically reduced. Consequently, automakers slashed their electronic component orders due to a lack of visibility regarding the industry’s revival.

However, consumer interest in new cars, particularly chip-dense electric vehicles (EVs), unexpectedly spiked near the end of 2020. As carmakers placed large rush IC orders, they found suppliers were short on inventory. Coronavirus-related lockdowns had prompted a digitalization wave that generated massive demand for new data center, personal computer, smartphone and video game console parts. Leading pure-play foundries reacted to the trend by focusing their production lines on fabricating commercial and consumer electronics products.

In addition to this, a shortage for certain raw materials like silicon wafers and ABF substrates placed a further squeeze on semiconductor production capacity.

As the crisis worsened, government leaders asked chipmakers and foundries to adjust their output to support the ailing auto industry. TSMC and other leading contract IC manufacturers agreed to help and shuffled the production lines to alleviate the component crunch.

Unfortunately, the unplanned adjustment disrupted the global supply chain, causing pricing fluctuations, shortages and delayed availability for many non-vehicle ICs worldwide.

Enacting Long-Term Solutions

Admittedly, the long-term effects of COVID-19’s impact on the semiconductor sector and demand in various end-markets were unforeseeable. But the flaws of a system dependent on a few regionally centralized part fabricators have been clear for years now.

The U.S.-China trade war demonstrated the global supply chain’s vulnerability to disruption from breakdowns in international relations. Its weakness became more apparent last year when many component factories temporarily went dormant and multiple billion-dollar industries ground to a halt. The current supply scarcity is the product of unmanaged systemic deficiencies that have developed over time.

However, the highly resilient global semiconductor industry should be able to resolve the crisis by midyear. Chip manufacturers are working hard to increase their output and expanding their capacity to help carmakers get their facilities back to normal. Even better, corporations and government leaders are addressing the underlying problem with meaningful long-term solutions.

Thanks to various public-private initiatives, America, Asia and Europe are developing new national semiconductor ecosystems. Those initiatives will make the electronics industry stronger by diversifying and decentralizing its supply chain. The projects will also foster design innovations that will accelerate the popularization of EVs and unlock the full potential of 5G.

The construction of new cutting-edge component factories, testing and assembly facilities, and logistics channels is a multi-year process. But once the work is done, OEMs, chipmakers and foundries will be better-positioned to help humanity usher in a more connected and seamless world.