A shortage in the supply of semiconductors first hit the automotive industry during the COVID-19 pandemic and has had a cascading effect, causing global disruption. The shortage can be traced back to the first half of 2020, when overall consumer demand for cars declined during the lockdown. This forced chip manufacturers to shift their focus to other areas, such as computer equipment and mobile devices, which spiked in demand with more people working remotely.
As 5G and cloud-based services grew, more chips were needed for communication platforms like Zoom and video streaming services. Part of the problem is that the return on investment isn't compelling enough to build new foundries—which cost billions of dollars and take years to construct—to satisfy the demand by automakers, according to IDC. Automakers operate in a just-in-time environment without business continuity planning, according to Mario Morales, program vice president of the semiconductor group at IDC. After they canceled orders early on in the pandemic, disgruntled suppliers turned to other markets that were still doing well, such as consumer electronics, and automakers found themselves lower on the priority list. Some customers are hoarding supplies and buying more components than they need in case supply dries up, as companies like Huawei stockpiled supplies in advance of U.S. tech bans on China earlier this year.
One of the inevitable consequences of the global chip shortage is an increase in counterfeit products. When companies find themselves in a distress purchasing situation, they let their guard down and may not be aware right away that they have been sold illegal parts, according to The Center for Advanced Life Cycle Engineering.
Companies have to be vigilant when they are dealing with independent distributors because they buy and sell components on online open markets, the CALCE said. Because parts can change hands various times, it can be difficult to trace the origins and credentials of the original seller.
The center advised checking the records of the company that is selling the components and conducting thorough tests on the parts, while acknowledging that often businesses don't have the time to do this.
How long the chip shortage will last depend on who is doing the forecasting. Gartner has estimated that the semiconductor shortage will extend well into 2022 and has warned that there could be a year's lead time for wafer orders. Forrester said it expects the chip shortage to continue through 2022 and into 2023. Supply will grow "from older chip fabs and foundries running processes far from the cutting edge and on comparatively small silicon wafers," wrote the IEEE. More than 40 companies will increase capacity by more than 750,000 wafers per month to the end of 2022, the IEEE said.
Despite a reluctance by some manufacturers to build new plants, there has been momentum. Intel said it will spend $20 billion to build two new fabs in Arizona, and TSMC plans to spend $28 billion on new chips and building plants to increase capacity.
Texas Instruments announced in November 2021 plans to build as many as four new semiconductor plants in Texas at an estimated $30 billion. Construction on the first two fabrication plants is slated to begin in 2022, and production of TI's 300-millimeter wafers is expected to start by 2025, according to the company. TI will have the option to build out two additional plants at the site in the future.
With Samsung announcing it will build a $17 billion plant starting in 2022, other states and cities around the country are trying to woo the company with incentives in the hope of attracting chip production to their areas.
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