Effects of the ‘Chipageddon’

The global chip shortage which has also been termed as the ‘Chipageddon’ (this should be the name of the next chipmunks movie :P), has been so evident and ubiquitous, that if someone doesn’t know about it, they probably have been living under a rock. 

The global chip shortage is an ongoing crisis that is due to an amalgamation of different events in the last few years, among which the COVID-19 pandemic has been the primary reason for the shortage. In a recent visit to a local automated door manufacturer, I became aware of the drastic operational changes the global chip shortage had on their operations. Even though I knew about how the global chip shortage has affected the tech industry and automobile industry, I never considered its effects on other industries. After all, they didn’t seem to be as related, or rather as dependent on integrated chips. In hindsight, this feels like a naïve presumption because a lack of supply of chips would affect a lot of things in today’s connected world and industry 4.0. According to an analysis by Goldman Sachs, the global chip shortage has affected more than 169 industries, in some way or the other. Even industries that might be seemingly distant from a semiconductor have been affected.

The global economic slowdown due to the COVID-19 pandemic has been one of the main contributing factors to the global chip shortage. But, even without the pandemic this would have happened sooner or later, as the problem has been building up over the last decade. The increasing demand for consumer electronic products with only a handful of companies to supply integrated chips, a boom in cryptocurrency mining leading to more use of GPUs, extreme weather conditions, and the lingering effects of the trade war between the USA and China have been some of the main causes for the shortage. Despite globalization, chip manufacturing is not distributed around the world and rather isolated in specific parts of the world like Taiwan and China owing to the need for cutting-edge technology and billions of dollars. This vast supply chain grid makes the supply chain vulnerable to international events and even small disruptions lead to shortages for the end consumer.

Global chip supply chain vastness (Image Source: IEEE Spectrum) 

Among the affected industries, auto manufacturers have been among the worst-hit industries as the auto industry wrongly anticipated the demand during the pandemic, and they maintain a lean inventory of chips to save costs. But, apart from the obviously affected industries related to computers, other industries have taken the brunt as well. The ripple effects of shortage of chips and reduction in manufacturing can be felt by the industries at the raw material end of the supply chain as well. Even the low-tech affairs industries, such as textile, plastic, soap, etc. have become increasingly reliant on using AI and automation for various tasks in the manufacturing processes. Further, with automation everywhere around us, even the products that inherently do not need chips, such as light bulbs, doorbells, etc. have been affected. The semiconductor industry also tends to focus more on the high-tech chips which are used in more advanced consumer technologies, instead of other applications that require relatively low-tech chips, for market dominance and growth. This further dries out the supply of chips for low-tech industries. All this is a testament to how dependent the world has become on tiny silicon wafers, manufacturers of everything from household appliances to smartphones to bulbs.

There is also an environmental effect of the global chip shortage. Like other industries, chips have become an integral part of renewable energy technologies. Sensors and integrated circuits control the inner workings of various systems like wind turbines, solar panels, etc. The shortage has made it difficult for companies and countries to meet their zero carbon emissions targets and renewable energy goals, which is bound to affect the climate and cause more extreme weather events in the future.

Almost all the major economies and semiconductor companies are taking steps to shorten the supply and demand gap and avoid this problem in the future. Intel and TSMC, two of the biggest foundries, have already announced plans to set up new foundries closer to the tech industry to shorten the supply chain. Further, the US Congress is poised to fund a US $52 billion silicon incentive package, as part of the America COMPETES Act, aiming to increase U.S. semiconductor manufacturing, while the European Union has also outlined their €43 billion chip-shortage-ameliorating packages. Recently, the Indian government also announced an incentive plan worth $9.9 billion to set up semiconductor units across the country and become a part of the global semiconductor market.

Intel's new Fab 42 in Chandler, Arizona, cost $7 billion. (Image Source: Google)

The effects of the global chip shortage will possibly be felt for quite some time soon, but as different countries and companies are taking steps to mitigate the existing issues and take precautionary steps for the future its effect may diminish. It will take time because setting up foundries takes a long time and multi-billion dollars of investment. Mitigating this problem is especially important for the industries which are seemingly unrelated to chips. With chips being a minuscule part of these industries, they can’t make a dedicated effort to counteract this problem. At the same time, it’s also important for us as consumers to be conscious of our mindless consumption of products, which has been increasing by the day. All in all, in some ways it’s better for this shortage to have come up now as our dependence on chips doesn’t seem to be diminishing in the future and a shortage in the future could have harsher consequences on the global economy and our daily lives.

References:

1. “What does chipageddon have to do with climate change? - ABC News.” https://www.abc.net.au/news/2021-05-07/what-does-chipageddon-have-to-do-with-climate-change/13327926
2. “These 169 industries are being hit by the global chip shortage.” https://finance.yahoo.com/news/these-industries-are-hit-hardest-by-the-global-chip-shortage-122854251.html
3. “Chip Shortages in the Light of Geopolitics and Climate Change | Center for Strategic and International Studies.” https://www.csis.org/blogs/strategic-technologies-blog/chip-shortages-light-geopolitics-and-climate-change
4. “These 5 Charts Help Demystify the Global Chip Shortage - IEEE Spectrum.” https://spectrum.ieee.org/global-chip-shortage-charts
5.  “4 sectors hardest hit by the global chip shortage | Fierce Electronics.” https://www.fierceelectronics.com/electronics/4-sectors-hardest-hit-by-global-chip-shortage
6. “Global chip shortage gives US manufacturing a boost - CNET.” https://www.cnet.com/tech/computing/global-chip-shortage-gives-us-manufacturing-a-boost/
7.  “Semiconductor shortage: Cabinet approves Rs 76,000 crore incentive plan to woo manufacturers - Times of India.” https://timesofindia.indiatimes.com/business/india-business/semiconductor-shortage-cabinet-approves-rs-76000-crore-incentive-plan-to-woo-manufacturers/articleshow/88298699.cms