Everything You Need to Know About the Semiconductor Chip Shortages
What are semiconductor chips?
Before we get into the shortages themselves, let’s take a moment to explore exactly what it is that semiconductor chips are.
Semiconductors are an integral part of many items we use – from cars to smartphones and everything in between. Their capacity for being so versatile has made them one of the most widely used resources around today.
Semiconductors consist of thin slices of silicon, typically just a few atoms thick, layered on top of one another to form a wafer. These layers are then cut into thin slivers that can be etched with circuits by various processes that vary depending on what they will be used for. The semiconductors are then made into transistors that can be set to transmit or block electricity.
Every year more and more of these chips are being used, as they make our lives easier and safer by enabling us to do things like communicate instantly with others on the other side of the world, drive cars efficiently without getting tired, and start our cars on cold winter mornings.
Now, more than 50 years after the first semiconductor was made, they are everywhere in our modern world.
Why is there a shortage of semiconductor chips?
The semiconductor shortage has been a problem since 2020 as a result of long-standing issues within the industry, such as insufficient capacity at fabs.
The COVID-19 pandemic introduced unprecedented challenges that led to demand dropping in the early parts this year and then recovering faster than expected towards the latter half when companies shifted production lines away from automotive chips while still needing them for other applications.
The current shortage of chips is unlikely to be resolved in the near future, partly because it’s so difficult and complicated for semiconductors. Similar lead times can exceed four months when you’re trying something new on an established line–and that doesn’t include any potential delay due to your move down yield or reliability problems (which could take six more!).
It is also not uncommon for manufacturers to alter their design in order to make it compatible with another company’s processes, which can add an additional year or more. In some cases, there may be manufacturer-specific intellectual property that needs licensing and/or alterations of the chip itself – all because you want something done differently from what has been done before!
What does this mean for businesses?
Semiconductor shortages are having significant impacts on businesses across different industries, with the chips responsible for nearly every product you see today. There is a cascading effect that can be expected from this shortage, and since not any industry will be affected equally it is likely your organization will experience some fallout.
With the availability of semiconductors reduced, other resources such as other types of silicon or raw materials for certain applications may also become restricted. If you use multiple semiconductor chips in your products or services, this could limit your options for meeting customer demand. This may cause a loss of revenue, loss of market share or an increase in prices.
How will this impact other industries (automotive, medical technology)?
The automotive industry is particularly concerned about the semiconductor shortages, as it will affect how they produce cars. Chips are already being used in everything from dashboard displays to engine management systems and self-driving technology.
With supplies tight, automakers are having issues with meeting the demand for new features that they want to implement in their next models. New features are usually introduced in new cars every 4-5 years to maintain market interest, but this is unlikely to happen during the next few years.
This will likely lead to an increase in prices for cars, as automakers will be forced to squeeze their production processes to reduce costs. Manufacturers may also have to increase the prices of existing models if they are unable to source the parts needed to update them with the latest features.
The semiconductor industry is one of the key components in medical technology. The use of chips already enables doctors to differentiate between healthy and cancerous cells during scans. If these semiconductor shortages continue, this could impact the diagnosis of patients as well as treatment options.
What can businesses do to prepare for the shortfall?
Businesses that use semiconductors will need to consider alternative suppliers and methods of production, because we may see a semiconductor shortage in 2022. On top of this, businesses should be prepared to deal with higher prices and potential long lead times when ordering semiconductors.
For example, an automobile manufacturer may have to switch to more expensive semiconductors, which would be passed on to car owners. Or they may decide to stockpile semi-conductors in the months leading up to the shortage, which will push prices even higher.
It’s likely that many businesses that rely on semiconductor chips won’t be prepared for this disruption – meaning that they will have to react when it happens.
Smaller chip manufacturers will likely suffer most in this situation, as they don’t have the resources of larger companies like Intel Corporation, which can stockpile chips or invest in new production lines. However, even large companies are expecting the shortage to affect them – although some may be better prepared than others.
It’s not all doom and gloom for businesses though – in fact, some manufacturers are seeing a silver lining in the shortage. For example, companies that make older semiconductors may benefit if they can sell their chips to companies that can’t get newer models. Still, others have found ways to produce semiconductors more efficiently.
Whatever the case, it’s likely that businesses will have to be more flexible when it comes to semiconductors in the next few years.
It is expected that semiconductor chip shortages in 2022 will have significant impacts on businesses across the world. As semiconductors are responsible for nearly every device you see today, this means that it will be difficult to escape the aftershocks of these shortages. Companies in all industries need to review their current production processes and determine what steps they can take to survive this shortage.
Experienced professionals can help you determine how best to prepare for the shortages expected in 2022, and will be able to create a customized strategy that takes into account your business’s needs. You may want to invest in new technologies or resources now to ensure that you are one of the few businesses that can meet demand during this tumultuous time.
If you are interested in learning more about the chip shortages or are seeking guidance on how to come up with a unique strategy for your business, contact one of our experts today!