Whatever could go wrong in the semiconductor industry seems to have gone wrong beginning in 2020, causing a severe shortage of chips.
In "Why We're in the Midst of a Global Semiconductor Shortage," published recently in the Harvard Business Review, authors Bindiya Vakil and Tom Linton point to several seemingly unrelated factors that led to the unprecedented semiconductor shortage that has crippled production in several industries:
"To a great extent, the chip shortage has been a ticking time bomb, building since late last year due to a few (unrelated) supply-chain disruptions. When the Covid-19 pandemic caused a precipitous drop in vehicle sales in spring 2020, automakers cut their orders of all parts and materials — including the chips needed for functions ranging from touchscreen displays collision-avoidance systems. Then in the third quarter, when demand for passenger vehicles rebounded, chip manufacturers were already committed to supplying their big customers in consumer electronics and IT."
Simply put, the semiconductor supply chain wasn't ready to accommodate a sudden surge in demand for chips from the automobile industry. Now automobile manufacturers are being forced to scale back their operations, as they do not have enough chips to install to the new cars.
Meanwhile, geopolitical events reduced the supply of chips flowing to the U.S. market. For example, the U.S.'s trade war against China cut off American firms from chips manufactured by China's Semiconductor Manufacturing International Corporation after the federal government blacklisted the firm.
Then, there were a couple of unrelated fires in factories that make key semiconductor components, including a fire at a Japanese factory which affected the supplies of special fiberglass used for printed circuit boards and a fire at another plant belonging to Asahi Kasei Microdevices that affected the production of sensing devices used in automotive and other industries.
Compounding these problems are delays in the global transportation system due to container shortage and port congestions, which exacerbated the situation.
While it is still unclear how long the semiconductor shortage will last, one thing is clear: semiconductors have become increasingly important in every industry.
Disclosure: No positions
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