Semiconductors or microchips are essential components in every electronic, vehicle, and other industrial machines. In recent times, the global supply of semiconductors has experienced disruptions resulting in most industries scrambling for the same in order to have enough stock amid the rise in demand for the products. There are many reasons as to why there is a big shortage of semiconductors in the world, some of which have been discussed below.
The COVID-19 Pandemic
When the world was struck with the COVID-19 pandemic, different countries imposed lockdowns with an aim to curb the spread of the disease. This initiative forced most car-making companies to shut down their operations temporarily because of reduced demand for vehicles as most people could stay and work from their homes. With this in mind, such carmakers had to cancel orders they made initially made for the semiconductors.
The manufactures of semiconductors, therefore, shifted towards companies making smartphones, laptops, and gaming devices as these products experienced huge demand resulting from lockdowns. When the demand for vehicles increased again, the carmakers had to make big orders for the semiconductors from the manufacturers which they could not manage to manufacture in time owing to the long time required to schedule orders.
Under the former President, Donald Trump, the US imposed sanctions against many Chinese technology companies citing national security concerns. Such companies were barred from purchasing semiconductors from different manufacturers, a situation that forced most of such companies to stockpile semiconductors before the issued deadline for the sanctions to become effective. For example, some telecommunication companies in China began stockpiling semiconductors in 2019 and making double bookings from the manufacturers, thus, causing uncertainty in the market. Stockpiling of semiconductors, therefore, resulted in a big semiconductors shortage across the world.
Disasters and Disruptions in the Manufacturing Companies
There have been reported cases of fire outbreaks in Japanese companies dealing with the manufacturing of fiberglass used for printed circuit boards and devices used in automotive. This disruption resulted in the closure of such industries, a situation that resulted in the reduced supply of semiconductors. The shortages of shipping containers have played a key role also in interrupting the supply of semiconductors. This has resulted in manufacturers shifting towards airfreight businesses which are in high demand due to the supply of COVID-19 vaccines to different parts of the world. This is posing a challenge in the supply of semiconductors.
In order to curb shortages of semiconductors in the future, most manufacturers have put in measures that will ensure a steady supply of the products by looking at, for example, OTCMKTS SMICY analyst price targets which has enabled them to project for major improvement.
For example, in Taiwan, a semiconductor company that manufactures more than 80% of microcontroller chips used in cars has committed 2.87 billion US dollars towards the expansion of its production capacity in Nanjing, China by mid-2022. In the United States, the biggest chipmaker also plans to focus on giving some of its capacity to carmakers.
In May 2021, the company announced that it has plans to invest 3.5 billion US dollars towards its expansion in New Mexico in addition to its current production in other US states. A European chipmaker, which supplies its products to car parts suppliers, has put in measures to work directly with car companies so as to understand the demand situation and be able to address such challenges effectively.
The automotive industry is also working towards addressing stiff competition from electronic manufacturers who have long-established their relationship with companies making semiconductors. The carmakers have embarked on a strategy intended for mitigating risks over cost management in order to ensure that they do not suffer from future shortages of essential components. Car manufactures are also establishing close ties with semiconductor manufacturers so that in the event of another pandemic or disaster that can destabilize production, they will work together to ensure that the supply chain faces minimal disruptions.
Owing to the US-China technology war, some countries have embarked on producing their own semiconductors in order to avoid future shocks that will again disrupt the supply chains. For example, China has made it a national goal to be self-sufficient in chips. The United States government is also working on legislation that aims to bring more chip manufacturers back to America.