The term semiconductors might take you back to your physics classes at school, but they are things we use in our daily lives. What you may not realize is that these semiconductors are behind what makes all of modern electronics work. Semiconductors, microchips, integrated circuits (ICs), or simply chips, as they are (not so) commonly called, are behind the design of many appliances and tools you use around your home.
Your smartphone? It’s got a chip.
The television? Of course, it cannot work without a microchip.
Your beloved collection of video games? Your computer? Your washing machine, refrigerator, and even your rice cooker needs a semiconductor chip in order to do its job. These ICs are what make your automobiles work too. It’s what powers the maps in your car, what makes your radio and music system work. It’s what sets the alarm off when you’re too close to a wall, and it’s what triggers your airbags when you’re about to crash. The smarter the car is, the more valuable the chips are to it.
Semiconductor chips are so tiny and yet so powerful and important. But now we’re short and the world is slipping into chaos. How is that happening?
What is the global chip shortage?
It’s exactly as it sounds. There is a worldwide shortage of microchips that are going to soon affect multiple industries. The impact is already being felt as the automobile industry is forced into halting production of cars across Europe and Asia, and it will soon create an even bigger ripple as it seeps into different sectors of consumer electronics and technology.
If the reports are to be believed, then this shortage is not getting over any time soon.
Chip demands are only increasing as factories and manufacturers open up their production lines and gear up to meet the industry demands. But due to the shortage, they are being forced to slow down their production drastically, and in some cases such as the automobile industry, halt altogether. The output of the semiconductor microchips is much lower than the existing demand, creating havoc around the world.
In 2020, the semiconductor market size is valued at $439 billion and it is expected to grow past $520 billion (Statista) this year itself. The sales of these microchips have risen at a rapid rate over the last ten years. When the number of devices that are becoming ‘smarter’ rises, the number of microchips required to make them that way grows. The last ten years have seen unprecedented growth in technology with the introduction of AI into consumer technology, automobiles, and various other tech gadgets that are used in your daily life. This has given rise to a never seen before demand for semiconductors, making them a crucial part of most appliances, tools and devices we all use every day.
Asia is the largest producer of semiconductors around the world. But the uncertainties raised due to the COVID-19 pandemic have left a huge impact on the manufacturing industry in the continent, eventually leading up to the global chip shortage that we see today.
What is the reason behind the global chip shortage?
As mentioned above, Asia holds the biggest share in terms of semiconductor sales. The continent accounts for 60% (Techwire Asia) of all semiconductor production, out of which China holds a 30% share. The four biggest producers of semiconductors are China, Taiwan, South Korea and Japan.
So if there are disruptions in the Asian economy and production lines, the entire world gets affected. The chip shortage started in late 2020 and it was considered to be a temporary inconvenience due to the pandemic. But there are four main reasons behind why there is still an ongoing crisis and shortage of these microchips today.
Altercations with the production and manufacturing of the microchips
The first reason is the COVID-19 pandemic causing a disruption in production in 2020, leading to an increase in demand this year. Chip production facilities were forced to shut down all around the world, which meant that production was at an all-time low. There are many countries that still haven’t started to recover from the pandemic, and most of them are in the East Asian region. While the rest of the world goes back to normal life, the demand continues to grow, and these countries cannot deliver because it still isn’t safe for them to operate at full capacity.
Disruptions in the supply chain industry
The second reason is the disruption in the supply chain industry. This again is a direct result of the pandemic. The shipping and transportation industry took a big hit during the pandemic and is still reeling from its effects. The disruptions in the supply chain continue to affect the market as there is a scarcity of available ports for storage, shipping containers, and employees to fill out the newly available job roles. So even if the microchips were being produced at full capacity (which they aren’t) there would be limited access to them because of the shortage of containers and people in the supply chain industry.
Rising demand for electronic goods
The third reason is the increasing demand for electronic goods that require semiconductors. Over the last year, people have adapted to working from home, which means they want to make their houses as comfortable as they can. This means investing in smart gadgets, home appliances, electronics, smartphones, tablets, computers… The list is neverending. The one thing that’s common among all of these upgrades is that they require chips to operate.
The increase in demand for new stuff has been felt worldwide. People from countries around the world want upgrades and there is not enough raw material or resources present currently to meet its demand.
Lack of production factories and raw material
The final reason is the lack of resources present to meet the chip demand today. The only way out of this production shortage would be to build different manufacturing units around the world. But it isn’t feasible in such a short period of time.
The USA has already invested a lot of money to compete with the Asian stronghold of the production of semiconductors in the market. But due to the other blockades in the supply chain, procurement of raw materials has become difficult and building such large scale manufacturing units is not possible in such a short period of time.
What is the impact of this chip shortage in the UK?
The biggest question that would be asked in this situation is – how long is this going to last? Are the repercussions of the pandemic going to be permanent?
Since this chip shortage has been a problem for nearly a year now, there have been multiple studies done to predict its duration. A study conducted by Gartner in May stated that the shortage was going to continue till the second quarter of 2022 (Gartner). This means that we still have 9 months before things can go back to normal. If this situation is already wreaking havoc in multiple industries today, who is to say what will take place in the next 9 months?
Read also: 75% databases to move to the cloud by 2022 – Data engineering trends 2021
How is the chip shortage affecting the UK?
Currently, the only thing that is in abundance in the UK is the shortages. There is a shortage of microchips, which has led to a shortage in automobile production and caused factories to shut down temporarily. There is also a shortage in fuel as gas prices are at an all-time high so people have started panic-buying petrol and diesel.
The panic buying has seeped into other parts of the UK as well. People are raiding supermarkets and cleaning out shelves faster than the stores can restock them. There is a shortage of supplies, of dairy, and well, pretty much everything that is necessary for today’s generation to survive.
Moving on from the digression, the semiconductors shortage actually has made a very severe impact on the automobile industry in the UK. The car production levels reached their lowest in 65 years in July with less than 53,500 cars (Sky News) being released into the market. There were two reasons behind this situation. One was the large-scale global pandemic causing the shortage of semiconductors, and the second was the pingdemic.
The pingdemic has affected many service-based and manufacturing companies. The fact that employees have to be isolated even if they have come in indirect contact with someone who has gotten infected with the Coronavirus is seriously hampering production. The isolation is not mandatory but it comes heavily recommended by the UK government. Even though the efforts to get everyone vaccinated are in full swing, the situation does not change.
The vaccine is not very effective against the Delta variant of the virus. At one point, the UK had the highest number of daily cases in the world, crossing 50,000 (BBC News) active cases a day. This made the self-imposed isolation even more necessary because otherwise, the rising number of cases would have forced the country into another lockdown. So, even though the country’s economy is opening up and it did show a major boost in GDP, the pingdemic scenario has managed to bring everything to a standstill.
Currently, the entire country is living in extremely uncertain and volatile times. The panic is being felt throughout the nation, and there is not much anyone can do about it except wait for it to settle. The lack of availability of semiconductors, combined with the natural gas shortage and the rising prices of heating and electricity has sent the entire country into turmoil.
Final Thoughts
Market research services showcase a slowdown in the economic growth of the UK. Car production will be slowed down as well, especially since more and more people have started to invest in greener alternatives. The e-car production levels crossed more than 25% of all vehicle production, and these cars, along with the rest, require microchips to operate.
All everyone can do is wait for the world’s production and manufacturing factories of microchips to go back to normal and for the supply chain shortage to stabilize itself, so that people can start moving forward from this pandemic. If not this year, then 2022 will be the year we truly enter a post-pandemic world.
