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When Will the Semiconductor Shortage Be Over?
The semiconductor shortage has disrupted industries around the world in the past year, but the problems of demand outstripping supply and shortages of passive components have been troubling the electronics industry for a few years now.
Semiconductor supply had been expected to rebound by the end of 2021, but it looks set to last this year, and perhaps even remain until 2023, according to experts. We look at the factors that are continuing to cause the semiconductor shortage, as well as how long it is likely to continue.
What are the effects of the semiconductor shortage?
The semiconductor shortage has been affecting almost every industry that deals with electronics in some capacity. In the consumer electronics market, there continue to be delayed shipments and availability issues regarding the Sony PS5 console and other products such as iPads.
In the automotive industry, the lack of components resulted in some production lines having to close for weeks at a time. Medical technology and devices in the United States have also suffered as a result of the shortages, putting millions of patients at potential risk.
What caused the most recent shortage?
The semiconductor market has been volatile for a while, but it took a significant hit during the coronavirus pandemic. While it is believed the worst of the pandemic has been endured and many businesses have adapted, the lingering effects of COVID are still causing significant disruption.
At the beginning of the pandemic, companies began buying laptops and other essential tech for staff to continue to work from home effectively. Consumers also began to buy personal electronics such as games consoles to keep them occupied. This increased demand for semiconductors came at a time when manufacturing capability was hindered by restrictions and reduced by illness.
The automotive industry scaled back orders in response to the reduced demand for vehicles, but once everyone was allowed to travel again and that demand rose, vehicle makers were at the back of the queue for in-demand semiconductors.
It is also important to note that most of the world’s semiconductor supply has been carried out by just two companies – Samsung in South Korea, and TSMC in Taiwan. Unfortunately, last year Taiwan experienced its worst drought in 50 years, which saw manufacturers struggling to get enough water to complete the chip manufacturing process.
Even without the drought, the overreliance on just two manufacturers was bound to cause problems in times of global disruption and travel restrictions. Speaking of transport problems, even the blockage of the Suez Canal contributed to the shortage.
When will the semiconductor shortage be over?
There had been hopes that the semiconductor situation was set to improve by the end of 2021 and some automotive companies even stated early in the summer that the shortage was showing signs of abating. However, this did not turn out to be the reality.
Despite this, there are reasons to be hopeful. The companies that many rely on have been making positive changes, with TSMC investing $100m over the next three years to increase their capacity, and Samsung, SK Hynix and the South Korean government pledging $451bn in capacity and incentives for chipmakers.
The difficulties that come with overreliance on those two countries have been realised, however, and more manufacturers who have fabrication capacity are looking to increase their own production and become self-sufficient. The US wants to invest money into incentivizing chip manufacturing in their own country, and the EU member states have made an agreement to grow chip building capacity across the bloc.
It will, however, take time for these investments to yield significant results. It takes around 2 and a half years to build a new fabrication plant and get it running, so those who already have fabrication capacity will have to increase production to help ease the burden.
It is impossible to say for certain when the semiconductor shortage will be over. What we do know is there has been a perfect storm of conditions to create a shortage of such significance, but recovery looks possible considering the significant investments that are being made.
However, it is important that supply chains look to the long term, and invest in not just meeting current demands, but anticipating future demand as well. As the population grows and more industries become digitised, the need for chips will only increase!