The Semi-Conductor Shortages - How It All Began
By now, we are all aware of the shortages in semi-conductor microchips that is reeking havoc in nearly every aspect of our lives; from games consoles, new mobile phones and new vehicles. Over 169 industries have been affected by the shortage. Prior to the shortage, many of us were probably totally unaware of what a semi-conductor was and how important such a small piece of metal was to our modern lives.
But how has the world found itself in this situation? What has gone so badly wrong that a tiny chip as grinded the production industry to a halt? Well... the answer is quite complex and is, in fact, the result of a multitude of disasters.
Yes, no modern day crisis is complete without attributing it to Covid-19, the word we are all tired of hearing about. Unfortunately, this matter is no different. 2020 saw the world come to a screeching halt with global lockdowns announced by governments across the globe. As businesses were forced to closed, people began the now infamous task of Working From Home (WFH). Children were forced to complete their schooling remotely.
Naturally, this caused a surge in demand for new home computers and tablets to facilitate education and working. According to the IDC, Quarter 4 of 2020 saw a growth on 26.1% on new computer sales compared to the previous year.
Computers need semi-conductor microchips.
But, like every other business, the factories making the semi-conductors were also closed. Stock was quickly depleted and in the absence of more being produced, the shortage had began.
Late 2020: Trade War Between the US and China
September 2020 saw two of the World's biggest super powers clash heads in a trade war. The on-going economic conflict between the US and China had led the US Department of Commerce to impose restrictions on a company called Semiconductor Manufacturing International Corporation (SMIC). Now, the clue is the name. SMIC are, in fact, China's largest manufacturer of semi-conductor chips.
This restrictions had a knock on affect as they also affected any company that had a connection to the US.
Companies that relied on this supply route for their semi-conductors had no choice but to use other suppliers. The go to was companies like Taiwan Semiconductor Manufacturing Company Limited (TSMC) and Samsung. The issue was, these companies were already running at or close to maximum capacity, and the surge in demand due to the trade war put unprecedented amounts of pressure on them.
2021: The Consequences of Severe Weather
An unusual suspect in the line up, the weather also had a role to play in affecting the supply of semi-conductor chips.
In the US, two plants that were owned by Samsung and NXP Semiconductors were forced to close due to a loss of electricity in Texas. February 2021 saw an extreme winter storm hit Texas, knocking out electricity. No electricity = no production. Supply that would have been produced by these plants was pushed back by several months. Oil production in the State was also drastically affected.
TSMC, as mentioned above, are one of the largest producers of the chips. 2020 saw TSMC produce more than 50% of the global supply of chips.
And in a way that could not even be written, 2021 saw Taiwan experience the worst drought in more than 50 years. But why does a draught affect the production of semi-conductors?
Again, we were all unaware of the process required to produce a semi-conductor microchip. For example, TSMC use more the 63,000 tons of water a day in their facilities. That is approximately 63 MILLION litres of water a day. The water has to be ultra-pure as it is used for cleaning the chips themselves as well as the high-tech facilities.
March 2021: Fires
So far, the industry has experienced a global pandemic, a trade war between world superpowers, extreme storms and the worst draughts in half a century. But it doesn't end there...
October 2020 saw a Japanese factory manufacturing chips for ADC and DAC (used in cameras and digital signal devices) catch fire. But March 2021 saw another Japanese factory catch fire. This particular plant was owned by a company called Renesas Electronics. This company produced microcontroller chips that are used in cars. In fact, they supply 30% of the global market for these specific chips. This hit the automotive industry incredibly hard. At the time, the company estimated that it would take them "at least 100 days" to get back to their normal levels of production.
Berlin, Germany (2022)
2022 was not off to a better start; January 2022 saw a production plant run by Berlin based company ASML also catch fire. This company did not produce chips directly, but they produce the necessary equipment required to make the chips.
2022: The War Between Russia and Ukraine
This brings us to the last chain in the link... for now.
It is nothing new that war has a significant impact on global economies and supply routes. But just like a perfect storm, it just so happens that both Russia and Ukraine play a pivotal role in the global production of semiconductor chips.
Lasers are required to produce microchips and a key element required for these lasers is a noble gas called Neon. Covid-19 and political tension between Russia and Ukraine had already seen the prices of Neon increase sixfold between December 2021 and March 2022.
Nearly 50% of the global Neon supply and at least 90% of semiconductor-grade Neon used by the US is produced by Ukraine. New suppliers of Neon are being sought by manufacturers in the likes of China, but new supply routes and deals take months to establish.
Furthermore, a precious earth metal called Palladium is another essential part required to produce chips. Russia is responsible for exporting approximately 40% of the global supply of Palladium. As Western Governments impose ever tightening restrictions on Russia, it is safe to say the supply of Palladium has been servilely interrupted.
Well, there isn't one at the moment. The world continues to plough through and no doubt a solution is on the horizon.
For now, the supply of new electronics and new cars continues to be impacted.