Editor’s comment: Chips with everything…

Author : Mark Gradwell | Editor | EPDT

03 May 2021

Mark Gradwell, Editor, EPDT

Ongoing global semiconductor chip shortages – precipitated by the COVID-19 pandemic – threaten to impact every sector. The proliferation of embedded & ‘smart’ technologies over recent years has seen electronics become increasingly integral to virtually every type of product or device.

A version of this editorial leader was originally featured in the May 2021 issue of EPDT magazine [read the digital issue]. Sign up to receive your own copy each month.

Sensing, intelligence and connectivity now thread through and enable applications and tech from AI & IoT, home & building automation, wearables & medical devices, to robotics & autonomous vehicles. And, of course, semiconductor chips are at the heart of every electronic device, providing the ‘brainpower’ behind your smart [phone, watch, TV, thermostat, doorbell, etc]…

The current chip shortage is the result of a perfect storm of interconnected contributing factors, precipitated by the COVID-19 coronavirus pandemic. What started as a temporary interruption in chip manufacturing, as factories (as well as other elements of the supply chain) shut down as COVID-19 first hit, fast became a full-blown crisis. Demand too was heavily disrupted, with global lockdowns impacting purchasing patterns and cycles.

Automotive manufacturers – now increasingly large consumers of chips, as modern cars use electronics to monitor, manage and control everything, even before factoring in trends towards electrification and ADAS – were among the first to slash chip orders, as they were hit hard, with many factories were forced to close in response to dramatic falls in demand.

At the same time, global lockdowns saw a massive shift to working from home, spiking demand for items such as laptops and tablets, plus peripherals including webcams, printers, speakers and headsets – as well as leisure tech, like gaming consoles or home media systems. This helped chip manufacturers balance their supply, with increased demand from consumer electronics mopping up newly excess automotive supply.

The supply crunch was also exacerbated by the escalation of US-China trade wars, with tariffs and sanctions, including former President Trump’s move to restrict Chinese access to advanced US-origin tech. This disrupted the usual ‘just-in-time’ inventory practices, forcing major Chinese tech firms such as Huawei to stockpile.

Chip production has also been disrupted by a series of freak events at manufacturing hubs, including a major plant fire in Japan and severe weather – snow and ice storms in Texas and a drought in Taiwan (the chip manufacturing process requires large amounts of water), that has halted production lines operated by the likes of Renesas, Samsung, NXP and Infineon.

Ahead of the pandemic, chip makers made big strategic bets on demand for the more profitable advanced chips needed for tech such as 5G and servers. Naturally, the pandemic has resulted in delays and uncertainty in rollout plans, while demand for more mature, less profitable chips (used in both vehicles and many consumer electronics basics) has spiked. Then, as car sales bounced back at the end of 2020, automakers quickly found there weren’t enough chips to meet their needs. Meanwhile, with capacity expansion a slow process in such a capital-intensive industry, chip makers prioritised larger and more reliable customers (including Apple, the world’s #1 buyer of semiconductors, spending more than $50bn annually).

The semiconductor chip supply problem is so big that US President Biden convened a summit to address the issue, meeting with CEOs of US tech firms and automakers, as well as key chip suppliers. He ordered a review of the semiconductor supply chain and backed legislation to bolster domestic chip manufacturing, including a US$50 billion fund in his infrastructure plan. With growing consensus that the supply chain is overly reliant on Korea and Taiwan, governments in the EU, India and Japan are also seriously considering investing billions in new local chip fabrication plants.

This last year has shone a light on the inherent risks of the highly globalised supply chains throughout the electronics industry. While concerns remain about the substantial levels of investment needed and the risk of excess capacity, thoughts are turning to how to ensure more resilient and diversified supply chains in the future. Since we need chips with everything, we live in interesting times…

EPDT May 2021's issue also contains features on Lighting technologies and Rail applications, plus EPDT's annual PXI for Test & Measurement supplement. Read more on what's inside EPDT this month...

Mark Gradwell
Editor


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