After consecutive, unprecedented supply chain disruptions, a global semiconductor shortage has hit the supply chain. This snafu has forced auto manufacturers to cut shifts and a major electronics company has halted a product release. At least one retailer announced that its products will only be partially assembled as it awaits the delivery of semiconductors.

Semiconductor industry analysts are authoring new reports regarding the long-term industry impact. Nearly every industry depends on semiconductors. For the military, they power essential operations and resources. The same could be said for the telecommunications and AI industries.

“Unless you were in the tech industry, no one even knew what a semiconductor was two years ago. And now it’s on the cover of Bloomberg and the Wall Street Journal,” says Jon Bathgate, an investor who specializes in the semiconductor industry.

The current semiconductor shortage suggests that, on a global-level, the “just-in-time” logistics model may benefit from revision. “It didn’t take long before the industry realized that with a tight constraint on processors, there really was no graceful exit to this,” says Phil Amsrud, a semiconductor industry analyst.

But where did things really go off the rails and spin out onto a collision course? At present, 54% of the world’s chip manufacturing occurs via a single producer. Nations with chip making operations may or may not be forced to prioritize their own nations’ needs. Murmurs about a “chip war” are winding their way around the internet.

Domestic semiconductor production

Following the White House announcement concerning an infrastructure plan that includes $50 billion for the American semiconductor industry, US Commerce Secretary, Gina Raimondo stated, “this is about out-competing China”. The European Union intends to double its semiconductor output as soon as it is able to.

Beyond that, the pandemic precipitated the sudden surge in the demand for laptops, Pelotons and home-electronics. How many new electronic devices has your family purchased in the last 12-18 months? Right. This contributes to the challenge of creating enough chips.

As noted earlier, the chip manufacturing supply chain is extremely complex. A single chip may involve a template from the US, silicon wafer parts from Germany, equipment from South Korea or the Netherlands, chemicals sourced in Japan, Taiwanese manufacturing, and packaging in China.

According to Charmaine Chua, a professor at UC Santa Barbara who studies globalization and trans-Pacific trade, the global supply chain relies on something called “pull production”. This involves predictions around the amount of demand and calculations concerning how to carry the least quantity of a product as to maximize efficiency and profits.

Is the semiconductor shortage more an issue of supply chain profiteering than anything else? “The choke point is not just, say the Suez Canal, but is actually the reliance on supply chains and [the idea of] continued availability,” stated Chua.

Auto manufacturing and semiconductors

While the semiconductors required for vehicles lack the complexity of those within iPhones, automakers need a relatively large number of chips in order to create their products. Certain chips cost less than a dollar to produce. They’re often needed for windshield wipers, or to enable the seats in a car to adjust.

As the month of March drew to a close, Intel announced a plan to ramp up semiconductor manufacturing capabilities. The company has invested in two manufacturing plants situated within the Arizona desert.

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