The 2021 global chip shortage that has dramatically affected electronics has been making headlines around the globe. The news about the cause and solutions in all industries continues unabated. It’s not only a crisis that matters to the supply chains of chips and electronic products but the whole world’s economy and society, from manufacturers to retailers, nations to individuals.
The crunch has drawn massive attention from the governments to seek out practical solutions, pushing the chip giants to expand their chipmaking capabilities.
When will the global chip shortage end?
It’s a topic that requires strong global collaborations to reach the most possibilities. It now has become an unprecedented and multifaceted issue that even the governments cannot do too much about it in a short time.
What is a chip?
General speaking, chips are the brains of all electronic products. Within the electronics industry, a chip is the term also known as microchip or integrated circuit (IC). In other words, an integrated circuit is a thin chip on which transistors, resistors, capacitors and more are interconnected. More specific, a thin chip is cut from a larger semiconductor material—wafer, usually made from single crystal silicon with high purity of 99.999999999%.
Why has chip shortage become a global crisis?
· Chips are essential and in high demand.
Chips are needed everywhere. From consumer electronics to aerospace, chips work as the brains in a wide range of sectors: home appliances, office appliances, PC, transportation, Tech, among others.
· The complexity of IC manufacturing and its supply chains.
What makes this tiny piece the most complex and expensive component in the world?
As mentioned above, IC chips are cut from a larger wafer on which transistors and other components are deposited.
The complexity of IC manufacturing comes from the 400 to 600 steps in the manufacturing process of semiconductor wafers and the critical points—metrology and inspection.
It takes 1 to 2 months to complete the manufacturing process. All the work will be wasted if any defects and issues occur in the previous stage.
Before the wafer can be ready for IC manufacturing, there are still several complex and time-consuming processes to go.
The silicon material is extracted from high purity quartz and quartzite sands. Electronic/Semiconductor Grade Polycrystalline Silicon (Polysilicon) is purified (“pulled”) from the silicon. That’s the reason silicon wafer is in a round shape. Impurities are added to the Polysilicon to make it semiconductor materials—N-type and P-type semiconductors—to control the electrical properties.
Besides, the current integrated circuit supply chain involves three major processes: IC Design, IC Manufacturing, and IC Assembly and Testing.
As the core of the semiconductor industry, integrated circuits have a market share of 83%. Due to the technical complexity of IC manufacturing, the supply chain structure is becoming more and more specialized. As the expansion scaling up rapidly within the capital-intensive industry with global supply chains, the competition has become way more intensive. For this reason, the current integrated IC supply chains are gradually moving from IDM (Integrated Device Manufacturers, such as Samsung) to the following business models:
-Fabless (IC companies design and sell the semiconductor chips but outsource the IC manufacturing to Foundry manufacturers): such as Qualcomm, Broadcom, Nvidia, and Apple.
-Foundry (IC companies focus on IC manufacturing for Fabless or other companies): such as TSMC, GlobalFoundries, UMC, SMIC, Hua Hong, PSMC, Tower Jazz, DB HiTek, VIS. Usually, the most complex process—IC chips manufacturing—happens here.
-OSAT (Outsourced Semiconductor Assembly and Testing): Mostly, it happens in Taiwan, mainland China, and the USA.
· Newly established areas have accelerated demand for chips.
The global chip shortage crisis begins with the shortage of the wafers—the bottom of the IC supply chain.
The wafers are the raw materials for IC chips manufacturing. The origin of the problems has a lot to do with the rolling shutdowns in the Auto industry due to COVID in early last year. When the Pandemic swept the whole economy globally, the Auto industry got hit first severely as they underestimated vehicle consumption, meaning the number of chips needed was not in stock.
Thus, carmakers underestimated the demand in automotive electronics, which is estimated to jump to $600 by 2030 from $475 in 2020, according to Deloitte analysis, resulting in a miss out $61 billion of sales this year alone.
In the meantime, newly established industries, such as 5G, ICT, AI, and Ultra HD, have accelerated demand for chips.
Take IoT, for example. The deployment and advancement of 5G laid the foundation for the development of IoT in terms of core technical support. Along with the development of 5G applications, the number of IoT devices maintains rapid growth, becoming the main driving force for the growth of the IC industry.
Is there a solution to solve the 2021 global chip shortage problem?
· Short-term solution
The saying “inventory is king” in the ICs industry has spread around the whole country here in China.
According to statistics within the industry, MCU is still the most in short supply material in Q2 2021. Currently, the supply of 8-bit and 32-bit MCUs from overseas manufacturers is in high demand, yet with an average lead-time of over 16 weeks, even more than 26 weeks to 50 weeks.
Following the price increase decision of some MCU manufacturers, STMicroelectronics announced a price increase on 17th May 2021, taking effect from 1st June 2021.
Furthermore, the other MCU manufacturers may follow this move. Unfortunately, purchase planning and waiting are most likely to be the short-term solutions at the moment.
· Long-term solution
The whole supply chains put high hope on the global top 10 chipmaking players—TSMC, Samsung, GlobalFoundries, UMC, SMIC, Tower Jazz, VIS, PSMC, Hua Hong, and DB HiTek, 80% of them are in Asia.
TSMC, the world’s largest contract chipmaker, said it would spend $100 billion over 3 years to increase its capacity, aiming to meet chip demand.
TSMC is not alone on the road to solving the global chip shortage. PSMC, another Taiwanese top-10-chipmaker, said to expect a total production capacity of 100,000 wafers per month in phases in early 2023.
Yet, there’s still a long way to go, despite the support from the governments. It takes years to fully solve the issues—from building a new manufacturing facility to operating it smoothly.
Conclusion:
According to the South China Morning Post, the global chip shortage could last until 2022. Begin with the automotive sectors; the crisis has spread to consumer electronics.
Given this situation, “waiting” is something we all need to go through but not a strategic move to keep your business running smoothly until the crisis has come to an end.
Strategic inventory planning and purchasing is the key to win the game during the crisis. We are here to help if you are seeking any integrated circuits resources integration in China.
For more insightful news about the global chip storage, follow us and stay updated.