Another month, another update on the global semiconductor shortage.

Thanks to the rapid development of AI, 5G and electric vehicles, demand for semiconductor microchips continues to rise despite virtually non-existent supply. Currently, the average lead time for the production of chips is only getting longer, and just two manufacturers in the world can make the products required at scale.

Unfortunately, the shortage is anticipated to last for at least another year as the manufacturing world catches up with months of demand that’s not been met.

Supply continues to slip

While the shortage initially began due to unmatched supply and demand, the issue was exacerbated by COVID-19 when demand skyrocketed for electronic devices such as PCs and gaming consoles, coupled with the quadrupling of silicon metal prices.

We’re also facing a shortage of raw materials required to make PCBs, such as copper-clad laminate and copper foil — both of which are in incredibly high demand.

However, the engineering, energy and construction industries have felt the heat the most. Despite the increased demand for new vehicles of all shapes and sizes, the lack of chips means manufacturers are struggling to keep up.

This unprecedented demand is no longer the only cause for concern as power shortages in China and droughts in Taiwan slow production even further. 

A series of setbacks in Southeast Asia

Factories across China have been forced to shut down in the wake of a lack of power due to tight coal supplies and clamping down on emissions. After only 10 of 30 mainland regions in China achieved their climate goals in the first half of 2021, authorities have stepped in and mandated a severe reduction in emissions. The power restrictions have disrupted dozens of Chinese and Taiwan-listed companies, many of which have had to stop work to comply with the power limits. In fact, up to 44% of China’s industrial activity has been affected, contributing to even further extended lead times.

But it’s no surprise that all industries are feeling the impact, with particular concerns raised over the possible shortage of goods over Christmas, such as smartphones and laptops.

Taiwan — home to the world’s largest chipmakers — is also still in recovery mode after an uphill battle with mass COVID-19 outbreaks in May 2021 while experiencing its worst drought in 50 years. However, the Japanese Government is considering funding the construction of a new microchip factory to cope with the unabating shortage.

What can we expect in the future?

It’s expected that the semiconductor chip shortage will extend into 2022 at least, and it’ll take a few years for the issue of foundry capacity to be addressed. However, there’s likely to be some reduction in severity as manufacturing capacity begins to open later in the year.

In response to the crisis, electronic manufacturers have had to adopt a new approach to supply, becoming more strategic with planning capacity and developing trusted relationships with their supply chains.

If any sector is keen to see the supply chain recover, it’s the automotive industry. According to Seraph Consulting, the shortage has cost the sector $450 billion in global sales to date, and many US car manufacturers have had to cut production drastically.

While the shortage has undoubtedly exposed the fragility of the global manufacturing landscape, there is a general sense of optimism that manufacturing will bounce back stronger with a more nuanced understanding of supply.

As a local electronic manufacturing service, we’re working hard to support our customers through such a challenging time. Get in touch to find out how we help!