Decoded: impact of the semiconductor chip shortage on the global economy


Semiconductors are a key component used in countless gadgets and electronic devices in everyday use. (Photo: Reuters)

They activate key functions such as high-end computing, operation control, data processing, storage, input and output management, detection, wireless connection and more.

Therefore, these chips are an integral part of all emerging technologies such as artificial intelligence, quantum computing, advanced wireless networks, blockchain applications, 5G, IoT, drones, robotics, gaming. and portable devices.

Semiconductor chips are inexpensive parts that play a key role in the manufacture of modern technological products and components. Simply put, semiconductor chips are the building blocks of modern computing.

Some facts about semiconductor chips:

* Semiconductors are mostly made from silicon

* All modern technology products and components require semiconductors, from smartphones to vehicles

* Some popular companies that manufacture semiconductor chips are Intel, Samsung, Taiwan Semiconductor Manufacturing Company (TSMC), Qualcomm, Broadcom, and Nvidia

* With advancements in technology, semiconductor chips are literally the backbone of many essential industries ranging from healthcare to agriculture

* The production of such chips may involve more than 1000 steps and several country border crossings

* The United States is the leader in chip R&D activities, while Taiwan leads in semiconductor assembly, packaging and testing functions. A large majority of the chips in the world are made in China.

WHAT IS BEHIND THE GLOBAL FLEA SHORTAGE?

The shortage first emerged after the Covid-19 pandemic devastated most countries around the world in 2020, resulting in widespread restrictions. Although the impact was not felt due to the drop in demand for goods during the pandemic, the situation has changed dramatically.

As the demand for electronics in various segments has catapulted, companies have been unable to meet due to the chip shortage.

Some of the main reasons for the global chip shortage are supply chain disruptions due to the pandemic, a surge in demand for electronics as more people are now working from home, and lack of investment. in chip building capabilities.

Several reports indicate that the chip shortage may not end until 2022, as supply disruptions due to ongoing Covid restrictions could continue for at least a year.

Patrick Armstrong, CIO of Plurimi Investment Managers, told CNBC.com that the chip shortage could last at least 18 months before the demand-supply equation normalizes.

Experts believe that countries will need to significantly increase their investment in chip-building capabilities to resolve the current crisis.

AFFECTED INDUSTRIES

Countless industries have been affected as global demand for semiconductor chips continues to outstrip supply.

Globally, automakers have been hit the hardest by the chip shortage, with major automakers such as Volkswagen, Ford, Renault, Nissan and Jaguar Land Rover feeling the heat.

All of these companies stand to lose billions due to the shortage of chips, which are used in many automotive components such as digital speedometers, infotainment systems, computerized engine management and assistance systems. to driving. Most companies said the disruption in vehicle supply could last until at least 2022.

The shortage of semiconductor chips has severely affected the global automotive industry. (Photo: Reuters)

Soumitra Bhattacharya, MD, Bosch, recently told Business Standard that this chip shortage will impact the automotive market through 2022. To deal with the chip shortage, automakers are now leaving out top features. range, Bloomberg reported.

Not only the auto industry, but manufacturers of consumer goods and smartphones are also under pressure to meet the growing demand for products.

South Korean consumer durables and electronics giant Samsung recently said the chip shortage has affected its production of television and home appliances. Companies like Apple, LG and other Chinese electronics and smartphone makers have also been badly hit by the chip shortage.

But the problem is more widespread than it appears. While automakers and consumer electronics manufacturers have been hit the hardest, countless other companies have been hit as all modern technologies require semiconductors.

IS THE CHIP SHORTAGE AFFECTING YOU?

Yes. The chip shortage is having a direct impact on consumers, as the prices of everyday household appliances and electronics – from televisions to smartphones – have risen due to the disruption of the global supply chain.

Meanwhile, the shortage of semiconductor chips has forced automakers to raise vehicle prices. In India, Maruti Suzuki recently increased car prices due to rising production costs.

Rising input costs may be a direct result of the global chip shortage. It will not be surprising that other manufacturers are also raising the prices of their vehicles, given the shortage of chips.

As it stands, the global chip crisis is far from over and the prices of many electronic products and components could rise another 1 to 3 percent, according to Goldman Sachs.

While major chip manufacturing companies have announced investments to speed up production lines, analysts estimate that it would take at least two to three years to build the new semiconductor chip production plants.


About Anne Wurtsbach

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