Why Worried About Chips ?

Size does not matter, but its Impact matters.

It’s not an overstatement to say that semiconductors power the modern world, they’re not only a key component of nearly every electronic device we buy and use. They also power the factories that make the electronic devices we buy and use they power our laptops, our cell phones, cars, washing machines, refrigerators.

And this is just the stuff in our home, we’re not even getting into all the way to semiconductors are important to the military and to the power grid.

If software is eating the world then the chips are the teeth and now there aren’t enough of them which created a massive global shortage and it’s getting so bad that General Motors, one of the world’s largest automakers said it could lose up to $2 billion because the semiconductor chip shortage forced it to temporarily shut down some auto manufacturing plants

Here’s how the global chip shortage got so bad and what’s being done to fix it ?

So what are semiconductors ? It’s silicon with with transistors built into it and
these circuits are put into basically any product these days that needs power generally every every single electronic product these days has these chips in them that allow them to do what they do.

When people talk about semiconductors now they’re talking about the advanced microchips that power smartphones computers and cars and advanced medical equipment and the analog semiconductor devices that power radios and thermostats the transistor.

A kind of semiconductor was first successfully demonstrated in 1947
at Bell Labs in New Jersey. Its inventors won the Nobel prize for Physics,
created the first tech companies in silicon valley and basically laid the
foundation for the modern digital world. After that transistor came, the integrated circuit, the microprocessor, et cetera. until the super small super advanced chips we have today.

Now the semiconductor industry is massive, within the industry there are
semiconductor companies that design the chips called fabulous companies and there are companies that manufacture them called foundries.

There are also integrated device manufacturers like Intel that both design and manufacture chips. Now more and more major semiconductor companies are adopting the fabulous model and contracting out orders to foundries like
Taiwan Semiconductor (TSMC)or Samsung and that trend toward fabulous has helped complicate the chip shortage we’ve all been hearing about.

So how did this all started ?

Well COVID-19 forced people to work from home, to go to school from home, to just basically do everything from home. People upgraded their computers they got, smart speakers tricked out their home theaters and played a lot of video games. Businesses scrambled to set up remote work systems and needed more cloud infrastructure.

So what became very clear ? There was a supply chain disruption but once that kind of started working its way through in the summer and China
started getting back to work , companies knew that they needed to increase production by a lot there’s no sign that the demand is slowing for semiconductors.

Global semiconductor sales totaled $439 billion in 2020 and that’s an
increase of 6.5% compared to the 2019 total of $412.3 billion according to the
Semiconductor Industry Association.

Another big reason for the shortage cars are getting more advanced and they need more semiconductors, in fact right now it’s the auto industry that’s feeling the squeeze in computer chips most acutely. Cars not only need advanced chips to run increasingly complicated in-vehicle computer systems
they also need older less advanced semiconductors for things like power steering. The auto shortages are happening because the auto OEM’s canceled
all their orders in the midst of pandemic last year and it just takes the supply chains a while to adjust.

Analysts expect the chip shortage to persist well into 2021. Semiconductors have been so essential to nearly every single industry, the chip shortage has forced the White House to take steps to shore up the chip supply chain in the United States.

What’s Next ?

After the immediate chip shortages get resolved the demand for semiconductors is only supposed to increase. New 5G telecom networks need smartphones with 5G enabled chips. The so-called Internet of Things (IoT) will put chips into more and more everyday devices. Remote work brought on by pandemic appears here to stay.

China is attempting to become self-sufficient when it comes to semiconductor chips. Right now it imports most of its semiconductors. Beijing has always had big ambitions to have its own home-grown industry but the US restrictions not only on sales to China for chips but also especially on a telecoms giant Huawei that has really acted as a stimulus for the industry.

Beijing has made chips a top priority for its next five-year plan. China has earmarked $1.4 trillion to develop the semiconductor industry by 2025 with a goal to have 70% of chips used in China made.

Geopolitical View ?

It’s no secret that the electronics manufacturing is kind of based in China right, but what people kind of don’t know is that the number one pure Chip factory in the world is in Taiwan that’s TSMC.

Now Taiwan has not had the trade issues that China has but it’s still an island off the coast of China, so there was a lot of discussion early in the pandemic last year that we have to look at the stuff from a geopolitical standpoint because if the military can’t make a jet because they don’t have chips
then Taiwan is caught in a geopolitical dispute.

So What’s the Solution ?

In the first place and in some cases building resilience will mean increasing respective countries production of certain types of elements at home and others will mean working more closely with countries trusted friends and partners, nations that share their values so that their supply chains can’t be used against themselves.