A $52 billion effort to assist chipmakers like Intel was prompted by a pandemic concern. However, Taiwan and Korea already spend three times as much on chipmaking gear as the United States.
If you can’t get your hands on a Ford F-150 pickup or a Sony PlayStation 5, blame the chip scarcity. A worldwide problem sparked by the COVID-19 virus has turned into a years-long outage of all electronic devices. The most stunning exercise of consumer power, the American holiday shopping season, is being hampered by product shortages.
If you can’t afford your favorite game console or laptop, you’re not alone in your frustration. As a result of the scarcity, the tech industry and lawmakers are attempting to reverse the United States’ declining role in the microprocessor industry. The US government is dissatisfied with the economy’s and military’s reliance on Asian high-tech production.
Chipmakers, enthralled by government incentives to fund research and build new facilities, and anticipating a surge in chip demand, are investing like never before.
The chip shortfall, in general, is throwing new light on the status of US manufacturing and how much of it has shifted out of the nation. Intel, which has slid to third place behind Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung Foundry, is hoping to restore its leading position by capitalizing on the tailwinds of increased demand and government financing.
“We don’t want to wind up in a position where the United States, which invented the semiconductor business and Silicon Valley, is fully reliant on other countries for that product,” Al Thompson, Intel’s US government relations manager, said.
The semiconductor industry’s new path is part of what some refer to as “decoupling,” which is separating the Chinese and US economies to some extent. No one expects supply chains without international ties, but the chip shortage solution has a distinct nationalist tinge to it.
Here’s what’s going on and what’s at stake.
What started the chip shortage?
In short, the COVID-19 epidemic sent shockwaves through the global economy. The semiconductor manufacturing industry’s ability to supply chips — not just the big CPU brains of a laptop but also the slew of supporting chips required to make things like dishwashers, baby monitors, and LED light fixtures — was strained as demand for work-from-home technology such as PCs, tablets, and webcams soared. The chip shortage quickly spread beyond distant work and school needs to include home entertainment goods such as tablets, game consoles, televisions, and graphics cards for gaming PCs, which consumers stranded at home were purchasing in record numbers. A fire at Renesas Electronics in Japan exacerbated the problem, as did severe winter weather in Texas, which shut down more than 70 power plants and cut power to a Samsung chip production.
COVID lockdowns forced manufacturers to postpone chip orders. Those firms rely disproportionately on lower-cost processors that do not necessitate cutting-edge chip-making technology. Chip factories had already assigned their capacity to other customers by the time they learned demand was picking up.
That wasn’t the end of it. The delivery of finished goods, as well as their components and raw materials, has been slowed by a surplus of shipping and a scarcity of shipping containers. Hundreds of electronic components are required for cars and computers, but even one missing component prevents a product from being marketed. There’s probably only one company that makes advanced processors.
How long will there be a chip shortage?
It won’t grow any worse, but it will most likely endure a few more months. Chipmakers have tried to cram as much new capacity as possible into their fabrication facilities, or “fabs,” but building new fabs and ramping up production takes years.
Intel CEO Pat Gelsinger told CNET that he believes the worst of the chip shortage is over, and that it will persist until the second half of 2021. He believes it will progressively vanish between 2022 and 2023.
Chip supply and demand mismatches have been occurring for decades, but nothing like this. “We’ve always had cycles in our lives. It’s different this time, “At the Code conference in September, AMD CEO Lisa Su stated. She, too, anticipates a reduction in chip scarcity by 2022. However, IBM CEO Arvind Krishna believes the chip shortfall will endure until 2023 or possibly 2024.
What is the impact of the chip shortage?
It’s simpler to state what isn’t affected. Chips are used in just about everything these days that has a power cable, thus the scarcity has affected cameras, microwave ovens, TVs, pacemakers, washing machines, and more.
The auto industry has taken the brunt of the damage. Cars now include computer chips that regulate everything from infotainment systems to antilock brakes, and the auto industry has depended extensively on “just-in-time” purchasing, which saves money but eliminates the need for a large inventory of parts to avoid shortages. According to a report by AlixPartners, the scenario has slashed their income by an estimated $210 billion in 2021, and auto manufacturing could suffer until 2023.
Carmakers such as Ford Motor Company, General Motors, Toyota, Nissan, Subaru, and Stellantis were forced to cease manufacturing due to the scarcity (formerly Fiat Chrysler). Some automakers have shipped vehicles without the necessary components, leaving customers without touchscreens in their new vehicles. Tesla was praised for surviving the storm better than most, but it is still plagued by chip shortages.
What are chipmakers trying to increase production?
Semiconductor companies are putting in more effort to get every single wafer through their fabs. However, there isn’t much they can do about the current shortfall.
Building a fab takes years. Intel has begun construction on two new facilities in Arizona, Fab 52 and 62, at a cost of $20 billion. However, full production will not begin until the second half of 2024, according to Keyvan Esfarjani, Intel’s manufacturing and supply chain chief.
However, today’s scarcity is hastening tomorrow’s investment. Demand for semiconductors is increasing, according to chipmakers such as Samsung, GlobalFoundries, Intel, and TSMC, as digital technology spreads beyond computers and cellphones.