Microchips and semiconductors are major components in many essential devices we use daily. They’re found in mobile phones, washing machines, digital cameras, electric cars literally anything that is computerized or depends on radio waves.
The pandemic took its toll on the entire economy, halting businesses and production worldwide. Granted the market rebounded after the reopening last summer, a few industries were still mitigating job cuts, decreased revenue, and potential foreclosures.
Semiconductor’s production still lags the current market demand, and we’re starting to the see the impact on manufacturers.
When the lockdown happened people around the world were at home and usage on all electronic items spiked. This increase in demand versus a halt in semiconductor production drastically reduced overall supply.
This shortage is plaguing industries, and it doesn’t seem like it will disappear anytime soon. The current need for smaller and more complex semiconductors increased as PC usage increased. To add insult to injury, the wider market is taking a bigger hit with General Motors $GM, Ford $F, and other automakers announced shutting down production on some models due to a lack of semiconductors.
There is a growing concern this shortage may go on for much of this year. Harlan Sur, a JP Morgan Analyst, says we believe semi companies are shipping 10% to 30% BELOW current demand levels and it will take at least 3-4 quarters for supply to catch up with demand and then another 1-2 quarters for inventories at customers/distribution channels to be replenished back to normal levels.”
The US Issue of Declining Manufacturing
At the moment the global production of semiconductors is mostly contributed by Taiwan, and the US lagging far behind. In fact, the number has drastically reduced, according to the Semiconductor Industry Association, to just 12% of global semiconductor fabrication.
This may not seem like a big deal, but in other words, 88% of the semiconductors used by US companies were fabricated outside the US. This causes concern because the high demand and limited investment into new supply production facilities creates an imbalance in the market. The most advanced microchip today is made with
How manufacturers respond to production shortage
Chip manufacturers are combatting the shortage by building out their manufacturing capacities even further.
Taiwan Semiconductor Manufacturing Co. $TSM, said it plans to spend $28 billion to build out its facilities this year. Not just in facilities however, TSM also will invest in its R&D and tool development to create the next generation of microchips. Advanced Micro Devices $AMD said it expects a strong 2021, and announced new laptop and data-center chips.
In the US, President Joe Biden’s executive order about supply chains will help estimates on how much investment is needed to improve prospects.