The Global Semiconductor Shortage

• The semiconductor chip shortage started after an unprecedented surge in demand for personal computing devices as people work and take school at home during the pandemic.
• European and US governments try to invest in the market to balance out the supply chain.
• Chips are likely to stay in short supply for the coming months as demand stays as high as ever.

Why is there a shortage?

Semiconductors are in short supply, first due to factory closures resulting from the Covid-19 pandemic and then the heightened demand for consumer IT products as work shifted to the home.
Further pressures were added to the supply chain as a series of unrelated crises occurred; a fire at a Japanese semiconductor foundry, a storm causing power outages that shut down chip factories in Texas, and construction work accidentally severing a power line at a manufacturing complex in Taiwan.

Can anything be done to improve supply?

While some companies design and manufacture their own chips, the cost and complexity of the process means that the sector relies on a few chip manufacturing facilities. These facilities are mainly located in Southeast Asia, with about three-quarters of all global chips coming from China, Japan, South Korea, and Taiwan. Many products are designed in Europe and the US but then manufactured in these countries.
Setting up more semiconductor production factories might seem like an answer, but the industry is not well suited to shifts in demand as the complexity of the product means it takes years and billions to set up a chip factory – and many billions more to keep it competitive.

Governments around the world have however begun to get more serious about semiconductor manufacturing. In March, the EU set out an ambitious plan to grow its share of the global semiconductor market by 20% by 2030. To help with this, the European Commission has committed $160 billion from its coronavirus response fund for tech investment. Over in the US, the government has been calling their reliance on foreign chip makers a ‘national security risk’. The Biden administration intends to bolster their domestic chip industry with the CHIPS for America Act, which will fund the semiconductor industry to the tune of $52 billion over five years.

These efforts towards more new semiconductor productions can’t be expected to make big changes to supply until 2022 or later, so little can be done to address today’s shortage besides adjusting orders, production schedules, and prices.