The global electronic components shortage has become a highly debated topic, driven by a combination of international circumstances impacting supply chains and inherent component scarcity. Of particular concern is the shortage of semiconductors and chips, posing significant challenges to the electronics industry. These chips, serving as the nucleus of components bestowing precise performance to electronic products, have evolved into essential and pivotal elements. Be it for applications in the Internet of Things, 5G advancement, or automotive electrification, the demand for chips has surpassed projections. However, chip scarcity can directly lead to reduced production efficiency. In this article, TechSparks delves deep into the IC chip shortage, examining its fundamental causes and outlining effective strategies for manufacturers to adeptly navigate this global event.
Reasons Behind the IC Crisis
An instrumental catalyst behind the current situation lies in the distinct V-shaped trajectory of global electronics consumption precipitated by the outbreak. Amid the COVID-19 scenario, a rapid decline has been anticipated, coupled with the shuttering of multiple factories due to financial woes. Resilient chip manufacturers are adopting prudent production strategies and calibrated staff reductions to preempt the repercussions of financial strains, even safeguarding against potential chain disruptions or collapses. Concurrently, the pandemic’s global impact exacerbates trade uncertainties, leading to the suspension of foreign trade transactions at the national level, that reverberate throughout intricate supply chain nodes.
In this intricate scenario, the anticipation of diminished chip stockpiles was foreseeable, yet the unforeseen surge in demand for electronics and household appliances following the subsiding of the outbreak exerts amplified strain on an already burdened supply chain.
Within this volatile market landscape, the most formidable challenge materializes within the foundry sector. As a pivotal link within the broader semiconductor supply chain, the foundry faces unique constraints. This challenge extends to core semiconductor manufacturing processes as well. Even industry titan TSMC, which commands 28% of global semiconductor capacity, confronts obstacles stemming from the festering IC chip shortage. For major manufacturers, the strategic response entails increased investments in constructing new fabrication facilities. However, even under these circumstances, expediting production offers no immediate panacea for the prevailing issue.
How Chip Shortages Are Affecting the Market
When the issue of chip scarcity emerged, its repercussions rippled across an unexpectedly broad spectrum. Nearly all segments of the electronics industry experienced varying degrees of impact, with perhaps the most prominent casualty being the automotive sector. Unlike consumer and home electronics, every system in the automotive field must be designed to deliver superior performance while remaining small enough to be used. This results in the need for a large number of integrated circuits in a single vehicle. While large numbers of chips are also required in areas such as industrial equipment, the total demand in the automotive sector is much smaller in comparison.
Since 2015, the market’s momentum has been markedly inclined towards domains such as smartphones and intelligent homes, sectors that are advancing at a pace surpassing that of the automotive industry. In response to this trend, chip manufacturers commenced a gradual reallocation of resources towards smart products to harmonize with evolving market dynamics. However, the surge of electric vehicles and the advent of smart driving technologies unexpectedly breathed new life into the automotive sector, propelling its output value into swift ascent. This surge persisted through the first half of 2021 but concurrently spawned a shortfall in chip supplies. According to projections by AutoForecast Solutions, the automotive production deficit from 2021 to the close of 2023 is anticipated to surpass 18 million units.
As we prognosticate, the chip dearth will inevitably precipitate an uptick in vehicle prices. Drawing from comparative data between December 2020 and December 2022, the average car price has surged by $6,382, while car sales have experienced a 2.6% decline over the same period.
Nonetheless, the repercussions of the chip shortage extend far beyond this, permeating multiple sectors and significantly impeding societal progress. Consider the advancement of 5G technology as an illustration. Countries are vigorously propelling 5G technology, positioning it as a pivotal national developmental strategy. China, a global frontrunner in 5G technology, has made substantial investments in 5G infrastructure, boasting over 710,000 base stations. However, the chip scarcity has cast a pall over the progression of IoT modules within 5G networks. Previously marked by a 25% annual growth rate, this advancement has now decelerated to 8%, significantly hampering the widespread adoption of 5G technology and disrupting the seamless transition from 4G to 5G.
These two instances merely scratch the surface of the chip shortage’s multifaceted impact on various industries. In reality, the market feels its ramifications to a considerably greater extent than one might envision, penetrating all societal facets and permeating every facet of consumers’ lives.
Integrated Circuit Shortage Solutions
While we cannot prevent the emergence of the global chip shortage or precisely predict its end time, nearly every manufacturer is tied to a rope We must collectively address this global electronic supply chain crisis and take measures to mitigate its impact on businesses.
Optimize Supply Chains: Swiftly shifting suppliers for critical components is not an easy task. It is advisable to maintain moderate reserves to alleviate potential scarcity threats. Concurrently, establish robust relationships with suppliers, particularly long-term partners. For conventional parts, expand the supplier list to increase collaboration opportunities. Once the threshold of secure domestic suppliers is reached, establish connections with overseas suppliers to mitigate the risk of regional shortages.
Reserve Planning: The duration of the chip shortage is hard to predict, so strategic reserves and long-term investment plans should be devised cautiously. Specific strategies should be based on the company’s growth trajectory and leadership’s predictions of future markets, allowing for flexible adjustments to reserve plans. An illustrative cautionary tale is the component shortage in 2022 that you might have heard of. To evade potential risks in 2023, a client procured components worth $200,000 in bulk towards the year-end. However, the component market rebounded in 2023, resulting in significant losses for the client.
Enhance Collaboration: In some large-scale enterprises, disparities in coordination and planning may exist among different departments. It is advisable to strengthen collaboration between departments. For instance, ensuring alignment between design teams and suppliers’ technical roadmaps and capital investment plans. Such coordination helps prevent internal conflicts and boosts production efficiency.
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