More than one year after the first COVID-19 cases, the coronavirus pandemic continues to highlight frangibility in the interconnected global supply chains. These logistical disruptions have impacted everything from staple food commodities to hardware essentials in the age of remote work and distance learning.
While the semiconductor chip shortage has limited the supply of smartphones and laptops, the ripple effects of this dearth extend beyond the smart device market. Automotive manufacturing relies on chips, and Ford recently announced that it was decreasing F-150 production due to the semiconductor shortage.
So how did we get to this point, and how will the shortage transform industries moving forward?
Trade wars, COVID-19, and bottlenecks
Gaurav Gupta, vice president analyst at Gartner, detailed some of the factors behind current shortages such as COVID-19 shifting demand toward hyperscale servers and consumer electronics to enable remote work and distance learning. He also mentioned the trade war between the United States and China, stating that this led Huawei and the company’s competitors to stock inventory in the second half of 2020 and caused “high foundry utilization.” Additionally, sanctions on SMIC, a Chinese semiconductor foundry, caused the company’s customers to seek foundry alternatives, “further stressing foundry capacity,” Gupta said.
SEE: Hardware inventory policy (TechRepublic Premium)
Frank Kenney, director of strategy at Cleo, described the situation as a “perfect storm” of sorts making note of factors ranging from increased demand since “everything now has chips” to shuddered warehouses. But there are also logistics and cargo bottlenecks to consider. For example, Kenney said the cost of moving a shipping container is now considerably more expensive “than it was 18 months ago” and referenced “extensive delays” at several ports along the west coast requiring companies to reserve cargo space “months in advance.”
“It’s a cluster at this point,” Kenney said.
Bringing chip production in-house
Last year, Apple announced that it would start designing its own chips and the first products containing its M1 chips were released in 2020. TechRepublic previously featured a story about Facebook designing its own chips and how this could help the company compete with other tech giants. Could the current semiconductor chips shortage spur other companies to begin manufacturing their own chips rather than remain at the behest of other manufacturers?
“While the costs and complexity of logistics have increased, the huge expense of R&D around ‘building their own chips’ will keep it cost prohibitive,” Kenney said.
“While companies could alternatively source from other suppliers, they tend to still be based in Asia and are dependent on shipping and air lanes, which are still subject to bottlenecks,” Kenney said.
In the automotive market, Gupta doesn’t think shortages will lead to auto companies manufacturing their own chips.
“Chip manufacturing is a capital intensive industry with huge up-front investments and requires ecosystem/talent/expertise/experience to execute. Plus, you need a fab of a certain size and utilization to make it financially viable—that isn’t the case for a single company in the auto sector,” Gupta said.
With current trends in electrification and autonomy, Gupta expects automakers to follow Tesla’s path by delving into chip design to “create differentiation” and “roadmap control,” but the “traditional auto guys,” as he put it, are set up and operate differently than Tesla.
“They are playing catch-up,” he added.
SEE: Why your company may need to build its own chips (TechRepublic)
How long will shortages last?
From remote work and distance learning to the daily computer-powered auto commute, the ongoing product shortages have readily illustrated the extent to which the modern economy and lifestyle hinges on semiconductor supply. But how long will these shortages last?
In the automotive industry, the ongoing supply disruptions could be shored up in time for another looming product shortage.
“Shortages will most likely start to get resolved around the time the battery shortage goes into full swing so the complexities of the automotive supply chain coupled with changing demands for components will be evident for a while,” said Darshan Naik, EVP telecommunications, media and technology at Capgemini North America.
Vaccine distribution and computing power
In recent weeks, COVID-19 vaccination efforts have increased around the country with well over one million doses administered per diem. Interestingly, these large-scale mass vaccination efforts could also be adding to the stress on semiconductor supply chains.
“The real shortage is silicon. The vaccine vials use the same silicon needed to manufacture personal computers, and the impact on supply chains right now is huge,” said WANdisco CEO David Richards.
Richards doesn’t see silicon scarcity “going away anytime soon” and said that increased silicon costs are “inevitable” due to limited supply and high demand for electronic, computing power, and vaccine vials even after the pandemic.
These circumstances and increased silicon costs will make “compute power increasingly within the hands of the richest and most influential companies,” he said.