What’s Driving the Semiconductor Shortage?

THE RESILIENT ENTERPRISE | THE RISKMETHODS BLOG
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Suddenly, it seems, components are in short supply, particularly in the auto industry. But was it so sudden? A series of seemingly unrelated events signposted the coming semiconductor shortage. Read on for more.

Table of Contents

  1. Drivers of the shortage
  2. Getting unstuck
  3. Destination resilience

As a new year begins, some people plan a digital detox. It’s like fasting. But instead of not eating, you stop using your smartphone or other handheld devices for a while. You clear your mind and reclaim your time, say supporters.

Unfortunately, not every digital abstinence is voluntary. You may have noticed recent product launch delays of popular consumer electronics. These include gaming stations, cameras, laptops, and smartphones. Their availability has been slowed by a worldwide shortage of electronic components. Particularly semiconductors are in short supply.

Personal devices don’t run without these essential microchips, but neither do automobiles. Carmakers including Volkswagen, Audi, Ford, Honda, Daimler, Fiat Chrysler, Suzuki, Toyota – even Chinese brands GAC and Great Wall – are putting the brakes on vehicle production, largely as a result of a microchip crunch.

What’s causing the semiconductor shortage? Reasons include the COVID-19 pandemic, of course. But we can trace a series of seemingly unrelated events back through 2020. Each of these risks chips away at the supply-demand balance and lead to supply chain disruption.

Drivers of the shortage

Negative supply side trend: Roughly 60% of the world’s semiconductors are manufactured in Asia-Pacific countries. Even before coronavirus lockdowns in Southeast Asia in early 2020, observers noted under-investment in eight-inch chip manufacturing (200mm silicon wafers used in microelectronics) in plants owned mostly by Asian firms. Events rolled on.

  • Market conditions: Chipmakers further throttled supply for automakers by reserving stocks for tech groups producing smartphones, tablets and gaming devices. Chinese technology giant Huawei Technologies snapped up semiconductors in bulk.
  • Geopolitical forces: The US tightened sanctions on China throughout the year. Subsequently, the US blacklisted the largest Chinese chipmaker, Semiconductor Manufacturing International Corporation (SMIC), in December.
  • Growth outlook; industrial dispute: No relief in Europe. Pandemic lockdowns, strikes at plants in France and Italy of Swiss-based chipmaker STMicroelectronics led to a roughly 8% fall in activity.
  • Fires and explosions: In October, fire and explosion heavily damaged a Japanese chip plant owned by Asahi Kasei Microdevices. Then, in November, a fire in the Taiwan-based factory owned by Unimicron Technology caused a setback to supply of IC (integrated circuit) substrates, which are used in semiconductor packaging.

Revving up demand: During the pandemic, consumer electronics purchases accelerated. Home-office and lockdown-induced demand for 5G phones, laptops and other home electronics picked up fast. At the same time, vehicles are veritable computers-on-wheels that rely on electronics and semiconductors to power battery management, driver-assistance systems and in-car entertainment.

Getting unstuck

Missed product launch. Idle workers on assembly lines. Involuntary abstinence. How can you make sure that disruption doesn’t happen (again)? By making your supply chains, and entire supply network, more resilient. And, moving forward, we offer the following take-aways:

  1. Sub-tier visibility is important. Keep an eye on the early stages in your supply chain, such as chips and printed circuit boards. When these materials are unavailable, your first-tier suppliers can’t deliver.
  2. Risk visualization and analytics tools are key. In the semiconductor shortage, for example, note the geographic spread and risk area spectrum. Turn seemingly unrelated news into useful information. Recognize patterns and visually make the connections. This helps you assess impact and start mitigation efforts.
  3. For strategic or essential components, it’s helpful to monitor more than just your current (sub)suppliers, so that you stay up to date on market dynamics. Also observe geopolitical forces and logistics paths (including extreme weather events, or key ports).
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Destination resilience

As the semiconductor shortage situation unfolded, did we inform customers? Sure. The riskmethods Solution™ sent the first risk-indicator messages in January 2020. riskmethods Risk Intelligence™ scours millions of data sources. Warnings followed for the risk events listed above that contributed to the semiconductor shortage. But The riskmethods Solution is about more than just receiving alerts when risk events materialize.

Using The riskmethods Solution dashboard and analytics tools helps you recognize risk patterns. We also provide you with the tools to understand the potential impact of threats, so you see where you need to make your supply network more resilient. You can include risk information in your decision-making processes and streamline your proactive mitigation actions.

In fact, digitization will lead to greater efficiency, saving you time and money. So, what is better than a digital detox? Reclaim your time and clear your mind through AI-based supply chain risk management.

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