Why the chip shortage drags on and on … and on


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The semiconductor industry lives on the pulse of technological progress. Why can’t it make enough chips to keep the world moving?

Nearly two years after the disruption caused by a pandemic, a severe shortage of computer chips – the components that make up the heart of smartphones, laptops, and countless other products – continues to affect manufacturers across the global economy.

Automakers have been forced to halt production in the past few months as sales plummeted because they couldn’t make enough cars. The shortage has impacted industries from game consoles and network equipment to medical equipment. In October, Apple blamed the chip shortage for creeping its financial results, and Intel warned the drought is likely to last through 2023.

In short, the semiconductor supply chain has expanded in new ways that are ingrained and difficult to resolve. Demand is growing faster than chipmakers can react, especially for simple but widespread components that are subject to large fluctuations in demand that make investments risky.

“It is absolutely amazing that it took so long for the supply chain to recover after the global economy stalled during Covid,” said Brian Matas, vice president of market research at IC Insights, an analyst firm that covers the semiconductor industry tracked.

For one thing, the sheer demand is surprising. In 2020, when Covid began to turn its business operations inside out, the chip industry was already expecting an upturn. According to the Semiconductor Industry Association, global chip sales fell 12 percent in 2019. In December 2019, however, the group forecast that global sales would increase by 5.9 percent in 2020 and 6.3 percent in 2021.


In fact, the latest figures show that sales rose 29.7 percent between August 2020 and August 2021. Demand is being driven by technologies like cloud computing and 5G, as well as the increasing use of chips in all types of products, from cars to home appliances.

At the same time, the sanctions imposed by the US on Chinese companies like Huawei, a leading manufacturer of smartphones and network devices, caused some Chinese companies to hoard as much as possible.

The surge in demand for high-tech products, sparked by work from home, the lockdown regime and the shift to e-commerce, has only continued and surprised many, says David Yoffie, a professor at Harvard Business School, who previously served on Intel’s board of directors.

Chipmakers didn’t realize the magnitude of the sustained demand until about a year ago, says Yoffie, but they can’t crank a dime. New chip manufacturing factories cost billions of dollars and take years to build and equip. “It takes about two years to build a new factory,” says Yoffie. “And the factories have become much bigger, much more expensive and also much more complicated.”

This week, Sony and Taiwan Semiconductor Manufacturing Company, the world’s largest contract manufacturer of chips, announced they would be investing $ 7 billion to build a factory that could make older components, but they won’t start making chips until late 2024 are also starting to invest in several state-of-the-art new fabs, but these too won’t go online until 2024.

Yoffie notes that only one company, ASML from the Netherlands, makes the extreme ultraviolet lithography machines required for state-of-the-art chip manufacturing and ASML cannot produce the machines fast enough to meet demand.

Another problem is that not all chips are created equal.