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Chip manufacturing technology is increasingly modern, why is the world suffering from a chip drought like today?

The whole world is in a shortage of chips and the problem is becoming more and more serious. The situation was even so serious that US President Joe Biden had to issue an executive order to address the supply of these technology products.

The US President also pledged a $ 37 billion fund to cover the short-term costs of rebuilding and securing the United States’ semiconductor supply, which is the basic components from microchips to everything above like computers, smartphones, renewable energy or military equipment.

In particular, the automotive sector is considered to be the hardest hit when semiconductor chips are becoming the backbone for most cars. Ford plans to cut production by 20% while Tesla closes the Model 3 assembly line for two weeks. In the UK, Honda was also forced to temporarily close their factories.

US President Joe Biden signed an executive order to try to address chip shortages globally

Even high-tech companies like Nvidia and Microsoft are affected by this shortage of supplies, as their Xbox graphics cards and consoles are currently out of stock. This shows that no company, big or small, technology or not, is safe from the widespread impact of the semiconductor “drought” this year. Where did the source of this crisis come from?

Market balance difference

While it is easy to blame the Covid-19 pandemic that led to the current situation, in reality the global semiconductor supply chain has had problems since before. Up to 70% of global semiconductors are made by just two companies, TSMC and Samsung.

Barriers to entering the semiconductor manufacturing market are also extremely large. It takes a huge amount of money to build a chip casting facility, which can range from $ 10 billion to $ 12 billion in initial investment and then at least three years for the facility to be ready for production.

Chip manufacturing technology is increasingly modern why is the world suffering from a chip drought like today | Information ICT

Even so, there is no guarantee that the finished chip yield of a new foundry will be equal to that of its predecessor. Chips are getting smaller, harder to manufacture, and the pressure to lower prices are key factors that bring more profitability risks to this business.

Therefore, it is understandable why only a few super-large companies are able to invest in chip manufacturing and share the risks and costs of their hundreds of thousands of customers. The global technology industry has happily relieved this semiconductor manufacturing burden on partners such as TSMC and Samsung. But when demand spikes around the globe, this becomes problematic.

Demand is exceptionally high

The Covid-19 pandemic spurred a surge in demand for home electronics such as laptops and game consoles, as more people started working from home and looking for new devices for entertainment. home.

The idea that when the demand for travel decreases and the economy recession, car companies will be less affected by this chip drought, but by the end of 2020, new car sales suddenly rebounded. making car companies unable to turn their hands on them. Semiconductor orders canceled at a time of low demand were taken over by home appliances makers, and carmakers have accepted the current situation.

Chip manufacturing technology is increasingly modern why is the world suffering from a chip drought like today | Information ICT

These virtual currency mining VGA has contributed to the global shortage of chips

The current situation is also the unintended consequence of former President Trump’s tough sanctions on Chinese companies. As semiconductor technology lags behind rivals, Chinese tech giants have ramped up stockpiling of semiconductor chips in 2020, hoarding almost any item with bulk orders.

The last factor in the current situation was the steep rise in bitcoin’s price in early 2021. This increased demand for GPUs used to mine multiple cryptocurrencies, exacerbating the problem. current semiconductor supply problem.

These factors were more than enough to force TSMC and Samsung to run at full capacity of their chip casting plants as well as prolong delivery times to fill orders, leading to the current shortages.

Who is the loser?

Shares of TSMC and Samsung have risen 190% and 61% respectively over the past 12 months due to this shortage of supply. Despite President Joe Biden’s best efforts, the situation is unlikely to improve over the next three years given all the technological and economic limitations in this semiconductor industry.

Consumer electronics prices have also risen over time, as speculators have swept away graphics cards and consoles from retail sites and resold them at higher prices on sites like eBay. .

It is probably only a matter of time before manufacturers and retailers decide to raise prices to meet today’s high demand and limited supply of components. End users will still have to pay more to get the product they want – just like a real drought.

Consult Fastcompany

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