chipping-away

Chipping Away:
Uncovering Opportunities In
The Semiconductor Shortage

Introduction

The worldwide deficit of semiconductor chips has reverberated across diverse industries. Causing notable disruptions to supply chains and presenting significant hurdles. This scarcity can be attributed to a combination of factors: growing consumer demand for electronic devices constrained production capacity and disturbances within the supply chain. Undoubtedly, increasing production capacity and resolving supply shortages on a global scale requires a substantial commitment of time. Nevertheless, it should be acknowledged that despite prevailing obstacles, this industry remains exceptionally profitable due to an unprecedented demand for chips across multiple sectors. In this blog post, our primary focus will be on looking into the prevailing scarcity of semiconductor chips and comprehending its implications across various sectors. Furthermore, we intend to highlight the potential prospects that arise for businesses and explain their significance within the broader landscape of the semiconductor industry.

The Cause of The Chip Shortage

The shortage has been caused by a blend of factors which include the heightened demand for online services and the disruption of the global supply chain. Moreover, a global chip shortage has impacted 160 industries and has arisen due to various reasons, such as war and pandemics including the following multiple factors:

  • COVID-19 Outbreak (2020)

    The COVID-19 pandemic caused disruptions in global supply chains and consequent shutdowns of factories as well as production delays. Companies have experienced significant revenue drops exceeding USD 480 billion due to challenges faced by the pandemic. Simultaneously, there was an unprecedented surge of 14% in global demand for PCs as individuals shifted towards remote work setups. However, this sudden spike meant that chips crucial for manufacturing purposes became difficult to acquire—creating shortages that affected numerous sectors including automotive and consumer electronics.

  • US-China trade war (2020)

    The US Department of Commerce has recently placed restrictions on Semiconductor Manufacturing International Corporation (SMIC) which is China’s largest chip manufacturer. This comes as part of the ongoing economic conflict between China and the United States. These restrictions have had a significant impact on SMICs operations limiting its ability to produce chips that are on par with other manufacturers in terms of both quality and quantity.

  • Texas Winter Storm (2021)

    The Texas winter storm that occurred in February 2021 had a significant impact on the production of essential materials used in chip manufacturing. As a result, numerous chip manufacturing sites were forced to shut down due to power outages that can lead to damage to delicate components and interrupt the intricate production process.

  • Russia-Ukraine War (2022)

    The world's neon chip production has encountered a significant setback due to an offensive action launched by Russia against Ukraine, causing it to decline by a staggering 50%. The two Ukrainian companies at stake, Ingas, and Cryoin, fulfill an essential role as suppliers responsible for furnishing roughly between 43% and 55% of semiconductor-grade neon required worldwide. This particular type of neon bears immense importance as it is crucial for fabricating lasers utilized throughout various stages involved in chip fabrication processes. Henceforth, this disruptive development has set forth widespread consequences throughout the international chip industry.


Industries Affected

Several industries heavily depend on semiconductor chips for their operations but the current shortage of these chips has resulted in a major disruption in the global supply chain. As a consequence, companies are grappling with heightened costs and production delays. Eventually leading to decreased profits and higher prices for consumers. It is anticipated that three specific industries will spearhead more than 68% of growth in the semiconductor industry. The automotive sector is poised to be the primary driver closely followed by data storage and wireless technologies.

  • Automotive Sector: The automotive industry has been severely impacted by a shortage resulting in production halts and delays. This shortage, caused by the pandemic, led to a global reduction of 25% in auto volumes in 2021. Additionally, there was a significant decrease in auto sales across the world: Europe experienced an 81% decline, China nearly 69%, and the United States 51%. Vehicle manufacturers have faced challenges in acquiring the necessary semiconductor chips for critical functions such as infotainment systems, advanced driver assistance systems (ADAS), automotive electronic control unit (ECU), and other automotive cockpit electronics.
  • Consumer Electronics: Popular consumer electronics encompassing smartphones, gaming consoles, and laptops have witnessed their own set of adversities amid prevailing disruptions. Manufacturers find themselves struggling with various hurdles to meet the escalating demands for these gadgets. In fact, due to chip shortages affecting the smartphone sector, sales figures fell by a substantial 5% in 2021
  • Telecommunications: The chip shortage has presented complications for telecommunications companies as they strive to enhance their infrastructure and establish 5G networks and 5G base station. The soaring demand for networking equipment and base stations has exceeded supply levels creating obstacles in expanding connectivity capabilities. Consequently, numerous telecommunications entities are encountering difficulties in meeting customer demands for their offerings.
chipping-away

Unearthing Opportunities Amidst The Shortage

The present shortage of semiconductor chips brings forth an exceptional occasion for innovation in the tech industry. With companies grappling to meet the rising demand for electronics, they find themselves pushed to explore unorthodox avenues and create alternative technologies capable of functioning independently from traditional chips.

  • Technological Innovation: Due to the scarcity of semiconductor chips there has been an acceleration in innovation and the pursuit of alternative solutions. At present, silicon carbide stands as the leading substitute while gallium nitride may soon take its place in next-generation electric vehicles. Moreover, companies are actively investigating novel manufacturing techniques, materials, and designs to improve chip production and enhance overall performance. Furthermore, exciting progress has been made in fields like quantum computing, nanotechnology, and artificial intelligence. This emphasis on innovation is expected to bring about advancements in chip design, fabrication, and efficiency.
  • Diversification of Suppliers and Supply Chains: The current shortage has brought to light the significance of diversifying supply chains and decreasing dependency on particular regions or manufacturers. In response, businesses are actively searching for alternative suppliers, exploring partnerships, and making investments in localized manufacturing capabilities. By broadening their supply chains, companies can strengthen their ability to withstand future disruptions more effectively.
  • Accelerated Digital Transformation: The shortage has increased the importance of digital transformation across various industries. With an aim to tackle the challenges posed by this shortage, companies are increasingly adopting automation, artificial intelligence, and cloud computing solutions. These implementations have been instrumental in optimizing operations and minimizing reliance on physical components. Consequently, this accelerated digital transformation will pave the way for enhanced efficiency and resilience in business models.

Leading Strategies in the Semiconductor Industry

In our rapidly evolving digital-first economy, semiconductors play a crucial role in both hardware and software systems. Consequently, the demand for semiconductor companies is expected to soar as products and services continue their digitization journey. However, the question arises: what strategies can be effectively employed to accomplish these goals? While every semiconductor company has its own unique strengths and weaknesses. It is evident that all of them can derive valuable advantages by re-evaluating their approach in six crucial areas: technology leadership, long-term research and development, resilience, talent acquisition, ecosystem capabilities, and increased capacity. By adopting a comprehensive long-term strategy, companies can ensure they possess the necessary resources to meet future demands while also minimizing production costs.

Investment Opportunities

Investing in companies dedicated to fostering alternative technologies or improving supply chains can offer investors noteworthy returns. In light of the ongoing impact caused by the semiconductor chip shortage on numerous industries, there will be a surge in demand for companies adept at introducing effective solutions and substitutes for conventional chip manufacturing methods. The global semiconductor market is anticipated to achieve a value of USD 1 trillion by 2030 according to industry experts. In the forthcoming decade, South Korea plans to embark on a substantial investment of USD 450 billion with the United States proposing an investment of USD 53 billion, also the EU will contribute up to USD 158 billion towards semiconductors. This emergence presents a significant opportunity for investors who possess the ability to identify companies that are well-positioned to capitalize on this growth.

chipping-away
Semiconductor Shortage:

An Opportunity For Asia Pacific

Amidst the worldwide shortage of semiconductors, there are significant opportunities for countries like India, China, and Taiwan to make a positive impact. India in particular is taking strategic steps to establish a strong presence in the global semiconductor market. To further support chip production and attract investments from the private sector the government has introduced incentives. Notably in December 2021 India announced a substantial incentive plan worth USD 10 billion with the goal of establishing itself as a prominent global chip manufacturing hub. Currently heavily reliant on chip imports, India’s semiconductor market is projected to exceed USD 99 billion by 2025 compared to its current value of USD 25 billion. To boost the production landscape in electronics components and semiconductors, India has initiated the Scheme for the Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS). In addition, Taiwan and South Korea hold a dominant position when it comes to leading-edge semiconductor manufacturing capacity below 10nm, accounting for approximately 93% collectively. In terms of overall capacity within the industry East Asia along with China contribute significantly with a share amounting to around 76%.


Bottom Line

In conclusion, the semiconductor chip shortage is a multifaceted issue that has had extensive repercussions on diverse industries. Industries, such as automotive, consumer electronics, and healthcare have faced significant challenges as production delays and increased costs have impacted their financial performance. Nevertheless, these difficult circumstances have also presented opportunities for innovation and investment in alternative technologies and supply chain optimization. Addressing this issue and finding solutions requires immediate action. It is crucial that governments, companies, and individuals come together to collaborate on this matter. By doing so, companies can ensure a more resilient and sustainable future for these industries as well as the global economy.

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swara-keni
Swara Keni

Head- Global Business Development

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