They are small and inconspicuous, but semiconductors are the driving force behind almost every modern technology. Today, millions of products like cars, smartphones, game consoles, and microwaves rely on computer chips, also known as semiconductor chips. However, there aren’t enough semiconductor chips to meet current demand, causing a global chip shortage.
Why are semiconductor chips important? Why is the world facing a shortage of semiconductor chips? Which industries are hard hit? Is the government doing anything to remedy the situation? We spent some time looking for answers to these questions and more.
Why Are Semiconductor Chips Important?
The Japanese multinational conglomerate, Hitachi, defines a semiconductor chip as “an electric circuit with many components such as transistors and wiring formed on a semiconductor wafer.” Adding that “An electronic device comprising numerous of these components is called ‘integrated circuit (IC).”
Semiconductor chips play an important role in controlling the flow of current in electronic equipment and devices. Some call the chip the brain of the electronic device.
In an attempt to show the importance of semiconductor chips, also referred to as microchips, integrated circuits, or simply chips, the Semiconductor Industry Association says, “Imagine life without electronic devices.” The association says such a life would have “no smartphones, radios, TVs, computers, video games, or advanced medical diagnostic equipment.”
An article published by the British Broadcasting Corporation (BBC) calls the semiconductor chip “The humble mineral that transformed the world.” Adding that, “The semiconductor chip has gone further than any other technology in connecting the world.”
The Roots of the Global Chip Shortage
As companies sent employees to work from home at the peak of Covid-19 infections in early 2020, supply chains started experiencing disruptions. Many people working from home needed new electronic devices. It looks like the industry did not prepare for this unprecedented demand, and shortages started to surface.
Even though the simple explanation is that more people require more electronic devices because they are working from home, some experts and analysts refuse to see this as the only reason.
The Role of Covid-19
Covid-19 is one of the reasons that industry commentators point to when they explain the global chip shortage. For instance, Daphne Leprince-Ringuet writes for ZDnet.com and explains that “As companies sent their staff back home to work remotely, PC and smartphone sales surged.”
Leprince-Ringuet adds that with very little to do at home, “people turned to new, chip-filled forms of entertainment to pass the time during months of lockdown, ranging from gaming to cryptocurrency mining.”
In an interview with TheVerge.com, Dr. Willy Shih, a professor at Harvard Business School, tells the story of how vehicle sales dropped drastically as Covid-19 spread across the world. This left automakers thinking they did not need all the chips they would otherwise have ordered, which reduced the production of chip manufacturers.
When the world started to open up as people were getting vaccinated, there was not enough capacity to meet demand.
While it’s easy to blame factors we can’t control, like Covid 19, Esther Shein, writing for TechRepublic.com, quotes some experts who say that the global chip shortage results from poor planning.
Shein cites the program vice president of the semiconductor group at IDC (International Data Corporation), Mario Morales, who says that the industry failed to anticipate the changing industry needs.
Morales suggests that as automakers canceled orders in the second quarter of 2020, “many disgruntled suppliers found other markets that were still doing well despite the pandemic,” such as the cloud infrastructure providers.
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