In the current age of technology, everything and everyone seems to be hyperconnected. Internet phone calls allow for family and friends half a world away to hear each other with crystal clarity, and everything from cars to homes to lights have a little breath of automation in them.
Indeed, it is as current Intel Corporation Chief Executive Officer Patrick Gelsinger said, “Every aspect of human existence is going online, and every aspect of that is running on semiconductors.” But what happens when our world, which is so dependent on technology, fails to find enough resources to feed the beast of technological innovation? We get a global economy that falters and fails.
As the International Data Corporation reported, the semiconductor industry is a massive part of the global economy, representing a staggering 442 billion dollar global industry (at the height of economic prosperity in 2020) with massive impact on other markets ranging from automotive manufacturing to consumer electronics. However, currently, the global economy is facing a deep economic crisis. Beginning early this year, semiconductor and silicon chip supplies around the world began drying up. Internationally recognized automotive manufacturers were the first to feel the heat, as automobile makers from Ford to Volkswagen began slashing production numbers and slowing factory production of new models of vehicles, many of which are dependent on GPS tracking, acceleration chips, entertainment features, and computing power.
But the water did not stop rising with automobiles. As global economic trends showed promise of growth, consumer demand for everything from personal electronics to refrigerators to game consoles made by companies like Dell, Hewlett-Packard (HP), Apple, and Samsung rose dramatically, while the supply for such electronics remained in short supply. As of publication in May 2021, semiconductor supplies around the world are still experiencing shortages. As Al-Jazeera reports, current chip leading times—the time necessary for orders of semiconductor chips to to be processed and shipped—has increased to 17 weeks; leading the Susquehanna Financial Group to christen semiconductor production globally in a “danger zone”.
Perplexingly, the causes for this massive shortage of technology resources are not crystal clear. As with most economic issues, the answer to why current situations exist often lend themselves to a healthy dose of uncertainty and speculation. However, current economists and global analysts point to two general issues in the semiconductor industry in an attempt to characterize the nature of this current shortage: rate of production and supply disruptions.
Semiconductor manufacturing is largely bound by geographic and economic constraints. Because of the very precise tools and training necessary to produce functioning chips and semiconductors, production is mostly limited to existing facilities. As a result, The Economist estimates roughly 84% of advanced semiconductors come from Asia; an area already igniting with great geopolitical conflict and escalating trade dust-ups. Furthermore, because semiconductors require human labor to produce, concerns regarding viral transmission of the coronavirus have largely impeded on the ability of existing Asian facilities to manufacture semiconductors at a pace necessary to keep up with demand.
Separate from the production issues plaguing the semiconductor industry, the semiconductor industry is also facing massive supply disruptions. While these freak accidents could be characterized as ‘acts of god’, the fact is that developments in recent months have not been kind to the chip-making industry.
Trained assembly workers in cleanroom suits and masks on the Taiwan Semiconductor Manufacturing Company factory floor. Image courtesy of the South China Morning Post.
In February, as Texas experienced record weather patterns and freezing temperatures, three large semiconductor manufacturing facilities in the United States froze to a temporary halt. In March, the Japanese chip manufacturer Renesas Technologies faced massive setbacks as a large plant in Hitachinaka, Japan (responsible for 1/3 of all automobile chips globally) caught fire. As these disruptions affect massive streams of semiconductor supply, the market itself braces for the worst. While Texas’ freeze and Renesas’ factory have rebuilt and resumed operations, their respective pauses have already shown cracks in supplying technology to the consumer market.