Semiconductor industry the chip shortage and its consequences

semiconductor industry the chip shortage and its consequences

cars, smartphones, household appliances – the supply bottlenecks for semiconductors are having an impact on many companies, causing production stops and delivery delays. For months now, the semiconductor industry has been producing at full speed, but the demand for various semiconductors continues unabated.

In the auto industry alone, two to four million cars cannot be built in the first half of 2021 due to a lack of microchips. There is a lack of electronic components like oscillators, microcontrollers and powerchips. Because of the shortage, manufacturers such as volkswagen, ford, nissan or honda have had to stop their assembly lines again and again since the beginning of the year. Peugot therefore already helps itself with analog functions. Starting in may, the peugeot 308 model will once again have an analog speedometer instead of a digital one.

caught cold by corona’s high demand

The fact that carmakers are being hit particularly hard by the semiconductor shortages is mainly due to pandemic demand. Under the pressure of declining orders, many companies had reduced their orders. But then demand for cars came back faster than expected. In the meantime, however, the chip manufacturers have switched their production to chips for computers and smartphones, which already experienced a peak in demand at the beginning of the pandemic.

Display driver chips are relatively simple computer components. And they are cheap to produce. Nevertheless, they are affected by the semiconductor shortage – and that has consequences for the global economy.

the available microcontrollers had already disappeared from the market at that time, because china, through its comparatively early upswing after the first wave, was already serving the increased demand for cars with increased production. Compared with computer and cell phone manufacturers, carmakers are relatively small customers in the chip industry. About eight percent of all semiconductors produced worldwide go into cars, which is roughly equivalent to the demand of the US tech company apple.

The chip shortage does not only affect microcontrollers, but is also noticeable in electronics and household appliances. In consumer electronics, the display driver chips are currently in particularly high demand. They are used to transmit basic information for illuminating screens, monitors or navigation systems; energy management chips are also in short supply.

Numerous customers, few manufacturers

In addition, the semiconductor industry is concentrated on a manageable number of suppliers. Around two-thirds of global production capacity for the manufacture of chips and processors is located abroad. The reason: many semiconductor manufacturers worldwide develop the chips, but they are finally produced in foundries.

the largest of these is taiwan-based TSMC, which produces three-quarters of its semiconductors under contract – including for American chipmakers. Although TSMC expects the situation in the automotive industry to relax. According to IHS markit, around 70 percent of microcontrollers for cars come from TSMC factories. However, the general shortage has not yet been resolved. According to the company’s own information, chip production is already running at full capacity. It is no longer possible to meet the further increase in demand.

The corona crisis is also causing upheaval in the chip market. Even carmakers are now suffering from supply bottlenecks. These are the leading semiconductor manufacturers

Unexpected production stoppages at other chip producers in the first quarter further aggravated the situation. In february, an earthquake caused a two-day production stop at renesas electronics, japan’s largest manufacturer of automotive chips. In march, production had to be temporarily halted following a fire.

Also in february, a heavy snowstorm in austin, texas, caused three other semiconductor producers that also supply consumer electronics – samsung, NXP technologies and infineon – to close their chip production facilities due to power outages. Samsung closed its plant for a month, while infineon said it would not return to pre-failure levels until june. Most recently, a drought in taiwan also raised concerns about whether the drought could affect TSMC’s water supply and thus chip production.

Investing in more production capacity

To mend fences, many semiconductor manufacturers announced plans to further expand their production capacity. The new production lines are likely to focus primarily on more advanced and often thinner chips, while the automotive industry has so far relied on older and thicker chips. A noticeable easing of the current bottlenecks is therefore only likely to occur to a limited extent through an expansion of production.

At the same time, the construction of new production sites is currently also facing some difficulties. Even the necessary production machines cannot be manufactured in sufficient quantities at present – partly because there is a shortage of chips for the operating systems.

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Christina Cherry
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