Global shortage of Semiconductor Chips

Q Why is it in News ?

A Worldwide carmakers have slashed production due to an abrupt and cascading shortage of semiconductors.

Q What are Semiconductor Chips ?

A 

• Semiconductors also known as integrated circuits (ICs), or microchips  are most often made of silicon or germanium, or a compound like gallium arsenide.
• It’s the thing that makes electronic items smart and faster.
• Made from a material, usually silicon, that “semi-conducts” electricity, the chip performs a variety of functions.
• Memory chips, which store data, are relatively simple and are traded like commodities.
• Logic chips, which run programs and act as the brains of a device, are more complex and expensive.

Q What are reasons for shortages ?

A 

• Stay-at-home shift: This pushed chip demand beyond levels projected before the pandemic. Lockdowns spurred growth in sales of smartphones, laptops etc to the highest in a decade
• Fluctuating forecasts: Automakers that cut back drastically early in the pandemic underestimated how quickly car sales would rebound.
• Stockpiling: Chinese smartphone industry dominates the global market for 5G networking gear — began building up inventory to ensure it could survive US sanctions.

Q How is the chip crisis playing out in geopolitics?

 A

• The global chip crisis and geopolitical tensions with China have shifted focus back on semiconductors.
• The US, which was once a leader in chip manufacturing, wants the crown back.
• The protectionist US is looking to bring manufacturing back to America and reduce its dependency on a handful of chipmakers mostly concentrated in Taiwan and South Korea.
• China’s renewed aggression on Taiwan is also being seen in light of the chip crisis.

Q What will be the impact of semiconductor shortages ?

A 

• Chip shortages are expected to wipe out $210 billion of sales for carmakers this year, with the production of 7.7 million vehicles lost.
• Broadband providers were facing delays of more than a year when ordering internet routers.

Q Why is it so hard to compete?

A 

• Manufacturing advanced logic chips requires extraordinary precision, along with huge long-term bets in a field subject to rapid change.
• Plants cost billions of dollars to build and equip, and they have to run flat-out 24/7 to recoup the investment.
• A factory also consumes up enormous amounts of water and electricity and is vulnerable to even the tiniest disruptions, whether from dust particles or distant earthquakes.