The semiconductor shortage that began in 2020 with the COVID-19 pandemic seems further and further away from ending. The few companies where production is focused cannot meet the demand, which affects the mobile device industry. The home appliance and automotive industries have had to reduce the supply of products due to the lack of chips. This article looks at how we got into this crisis, how it has affected global production, what factors deepen the situation and how long it will last.
Pandemic confinement forced people to go into seclusion and work or study from home. It led to an exponential increase in demand for electronic devices such as tablets, computers and entertainment consoles. According to the International Data Corporation (IDC), in the first months of 2021, worldwide computer sales rose 55% more than in 2020, and semiconductor fab revenues increased by 25.1%.
The automotive industry has been one of the hardest hit by the semiconductor shortage. Confinements also caused factories to close and semiconductor orders to halt. Following the just on time principle meant a supply disruption. A car requires an average of 3,000 chips to run. Due to shortages, the lockdown, and the supply chip problem, automakers reduced production by 7.7 million units and fell behind deliveries.
Most chip production goes to meet the demand for electronic devices, and factories do not have enough supplies to meet the demand for cars. By 2021, this meant revenue losses of USD 210 billion. The fire at the Renesas semiconductor company in Japan in March 2021 put Toyota, Honda and Nissan under additional pressure. They already had supply shortages in Mexico, Canada and the US.
The lack of diversification of production sources exacerbates the problem. Asia produces Eighty-seven per cent of the world's semiconductors, and three companies concentrate three-quarters of that production. Taiwan's TSMC is responsible for 54% of total semiconductor production, followed by Samsung and SMIC, with 17% and 5% of the market.
In the fourth quarter of 2021, TSMC earned 44% of its revenue from cellphones, 37% from computers and 9% from devices related to the Internet of Things and 5G technology. The huge demand has forced department stores to offer a smaller variety of products and backlogged models of various devices. Brands such as Apple, one of TSMC's primary customers, had to delay the launch of their iPhones.
In May 2021, Taiwan, usually characterised by monsoon rains, suffered one of the worst droughts. In response, the government decided to limit water supply to several industrial areas, including the semiconductor industry, which put further pressure on the industry and increased DRAM prices. Chips must be rinsed with ultrapure water, an industrial solvent, to remove debris in the production process. A 30 cm integrated circuit requires about 9092.1 litres of water.
TSMC sorts wastewater from purification and processing equipment according to purity. The cleanest water goes for purification and recycling for the manufacturing process. The second most sterile water is treated in water recycling facilities and then supplied for use by water-consuming units other than production equipment. One hundred fifty thousand metric tonnes of water is used per day in chip production at TSMC. That's 39 million metric tons of water per year. Just over 3 million tons are recycled (equivalent to 8.4% of total water). The remaining 91.6% goes down the drain.
The new escalation in the Russian-Ukrainian conflict also poses a challenge for semiconductor production. In 2014, the annexation of Crimea caused prices of neon gas, an essential commodity for shaping chips and etching silicon wafers, to rise 600%. Odessa-based Cryoin Engineering, which produces around 70% of neon gas exports, 90% of which goes into US semiconductor production, could see its output compromised.
All these pressures have led the West to consider reconfiguring semiconductor supply chains. In June 2021, the Biden administration allocated USD 50 billion in funds to develop the domestic semiconductor industry. In March this year (2022), Intel announced that they plan to invest around 80 billion euros in strengthening the semiconductor industry in Europe over the next decade.
Demand is growing swiftly, and building a semiconductor fab takes at least two years to make and another year to start operating optimally. According to the most optimistic views, the semiconductor crisis could be over by 2023. Intel's CEO expects a full recovery in 2024. It means a slowdown in the automotive industry and the technology industry, with external inflationary consequences.
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