Hello everyone and welcome back to the Cognixia podcast. Every week, we get together to talk about the latest happenings, bust some myths, discuss new concepts, and much more about emerging digital technologies. From cloud computing to DevOps, containers to ChatGPT, and Project management to IT service management, we cover a little bit of everything weekly to inspire our listeners to learn something new, sharpen their skills, and advance in their careers.
For quite some time now, there is one news that very often makes the headlines, at least on the inner pages of newspapers, that there is an acute shortage of semiconductor chips in the global market. We have been hearing about this for so long now. Why hasn’t the situation improved so far? Why can’t this problem be fixed? Why can’t we have more manufacturers and manufacturing units making these chips? We will discuss all this and more in this week’s episode of the Cognixia podcast.
The global chip shortage began in early 2020 owing to the Covid-19 outbreak. Since then, supply chain issues have continued to persist, impacting a wide range of industries, from consumer electronics to artificial intelligence. Why this large impact? Well, every digital electronic device in the world today is powered by a semiconductor. Semiconductors are made using silicon and they are indispensable for creating the integrated circuits that power all digital electronic devices. These are also called microchips. Just about anything in the world that can compute or process any kind of information – smartphones, smart watches, laptops, smart home devices, anything at all, will contain a chip and will need a semiconductor.
So, what is the problem? Why the shortage?
The thing is, chips aren’t all that easy to make. It is a challenging task. According to experts, these semiconductor chips can take up to a whopping six months to make. Ok, so it is time-consuming. Then maybe just establish new factories and get things going, isn’t it? Well, it is also not so easy to establish new factories. It could take years and years to build a new semiconductor manufacturing factory and even more time to get the process and quality control up and running.
By July 2023, the world had emerged out of the Covid aftermath almost completely and existing semiconductor manufacturers had already ramped up production. The buyers of these semiconductor chips had also adjusted to the new normal and the chip supply had become more predictable. Production capacity has been improved and the demand for electronic devices has cooled off on the backs of impending or existing recession or inflationary pressures in different world economies, which helped the chip shortage to ease a little bit. But that wasn’t enough.
However, the time-consuming nature of semiconductor manufacturing is not the only challenge that is causing the issues here. There is another thing to consider. There are export restrictions on key semiconductor materials from China, like gallium and germanium. So, while the production has been ramped up, the key inputs needed for manufacturing are in short supply which is again moving situations towards a shortage.
This raw material shortage is not so much a product of the Covid outbreak. The semiconductor supply chain was facing challenges even before the pandemic happened because of a series of events around the world, such as the trade wars between the US, China, Japan, and Korea. This had a major impact on the commodity pricing and distribution. Additionally, there was a drought in Taiwan, plus there were three plant fires in Japan between 2019 and 2021. Taiwan and Japan are the major semiconductor producing territories so anything that impacts them would have an impact on the semiconductor supply chain, undoubtedly.
Automotive industry has been one of the biggest consumers of the semiconductors, but thanks to the pandemic, the automotive industry began to cut back on orders. This helped the semiconductor industry shift gears and focus on meeting the demands of other industries like consumer electronics.
But, the relief was short-lived. By the end of 2020, as news for Covid vaccines seemed promising and our understanding of the coronavirus improved leading the world to open up again, the demand for automotive shot up again, which rolled over to a higher demand for semiconductors again too. This was more so because people were still wary of the virus and there was still a need to be cautious, so avoiding public transport was an easy way to go about it. This wrecked the semiconductor supply chain again. With a slowdown in sales for PCs, smartphones, and other gadgets, foundries in Taiwan had some extra capacity to play with. They shifted their focus to the auto industry and other sectors, giving them a much-needed boost.
IoT has advanced by leaps and bounds in recent years too and guess what is the one thing that is absolutely indispensable for IoT? Semiconductors. To make things even more complicated, there were other challenges to tackle. The U.S. needed to beef up its workforce of skilled workers in the semiconductor field. This meant fixing up the immigration system and improving STEM education. More workers would help ease the talent shortage.
And let’s not forget about the ups and downs of the economy. These short-term dips in sales didn’t help the semiconductor industry, but it’s nothing they can’t handle. Overall, the future looks bright for the semiconductor industry, despite the challenges.
All these factors at one point overlapped and led us to where we are today – facing an acute shortage of semiconductor chips. Some customers went a bit overboard, stocking up on way more components than they actually needed. It was like a mini panic buying frenzy, with companies like Huawei grabbing as much as they could before the U.S. tech bans kicked in. This hoarding made the supply crunch for semiconductors even worse, which wasn’t good news for anyone.
So, what’s the way ahead? The semiconductor industry is on a roll! Sales are climbing steadily, with McKinsey predicting a growth of over 20% in 2021, reaching around $600 billion. Leading the charge are industries like automotive, data storage, and wireless tech. And the good news doesn’t stop there – this growth is expected to continue, averaging between 6% and 8% per year until 2030. Looks like the semiconductor industry is in for a bright future!
McKinsey predicts that the semiconductor industry is heading towards a massive $1 trillion market by the end of this decade. This growth is fueled by an average price increase of around 2% per year and a return to balance between supply and demand after the current ups and downs.
The numbers are pretty impressive. In 2020, the global semiconductor market saw a growth of 6.8% compared to the previous year. And the momentum is expected to continue, with a projected growth rate of 12.2% per year from 2022 to 2029. This means the market could reach a whopping $1.38 trillion by 2029!
With that, we come to the end of this week’s episode of the Cognixia podcast. We will be back again next week with another interesting and exciting new episode. We hope you enjoyed listening to us today.
See you again next week. Until then, happy learning!
