Semiconductors are silicon chips that cater to control and memory functions in products ranging from automobiles, computers and mobile phones to various other electronic products and appliances.
Globally, the utilisation of semiconductors in the automotive industry rose in recent times with new models launching with advanced electronic features such as Bluetooth connectivity and driver-assist, navigation and hybrid-electric systems.
2020–21 global chip shortage explained
In nearly every electric product, there are semiconductor chips. Some of the items are smartphones, cars, electric toothbrushes, washing machines, refrigerators, etc. However, these appliances and products are now in critically short supply.
The coronavirus pandemic-induced lockdowns temporarily disrupted the shipments of semiconductor chips (also known as integrated circuits), amid a massive rise in the global demand for PCs, laptops, mobile devices in response to online learning and remote working.
Global semiconductor chip shortage triggered a major delay in manufacturing activities, with automobile companies cutting down on production and electronic device makers struggling to keep up with a pandemic-led surge in demand for phones, TVs and gaming consoles. The shortage of semiconductors stalled production across manufacturing industries, especially in the auto sector.
The semiconductor chips are so much in demand that manufacturers are finding it difficult to produce enough chips causing a huge spike in prices.
Since the beginning of shutdowns in 2020 across the globe due to the outbreak of the Covid-19 pandemic, the total demand for chips surpassed the supplies due to the closure of chip-manufacturing units in various parts of the world.
The global chip shortage impacted more than 169 industries, leading to disruption in production across an array of products, including vehicles, laptops and mobile phones.
In fact, the Covid pandemic, the China-United States trade war and the Taiwan drought are a few primary causes for the global chip crunch.
In September 2021 quarter, semiconductor chip inventories ran low across the most crucial sectors around the world. Input shortages and low inventories led to production cuts and delayed shipments. The worst-hit carmakers faced stiff competition from the sprawling consumer electronics industry for chip deliveries.
According to the semiconductor manufacturing majors, there is not much return on investment (ROI) to build foundries to meet the demand by the automakers.
"The global chip shortage is likely to stretch into 2023 in areas where capacity expansion is slow to catch up with consumer demand", experts said.