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Why is the world short of computer chips, and why does it matters?

  • IAS NEXT, Lucknow
  • 06, Jan 2022
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There are no signs of the global chip shortage easing any time soon, and one of the reasons behind it appears to be getting worse, not better.

Industry experts say that a shortage of qualified staff is a growing problem, especially the highly qualified engineers needed to design new chips and solve manufacturing problems for ever more complex ones.

Why are there shortages?

The stay-at-home shift: This pushed chip demand beyond levels projected before the pandemic. Lockdowns spurred growth in sales of laptops to the highest in a decade.

Fluctuating forecasts: Automakers that cut back drastically early in the pandemic underestimated how quickly car sales would rebound. They rushed to re-up orders late in 2020, only to get turned away because chipmakers were stretched supplying computing and smartphone giants like Apple Inc.

Stockpiling: PC makers began warning about tight supplies early in 2020. Then around the middle of that year, Huawei Technologies Co. began building up inventory to ensure it could survive U.S. sanctions that were set to cut it off from its primary suppliers. Other companies followed suit, hoping to grab share from Huawei.

Disasters: A bitter cold snap in Texas in February led to power outages that shut semiconductor plants clustered around Austin. A plant in Japan was damaged by fire in March, disrupting production for months.

Impact and concerns posed by the shortage:

  • Countless industries have been affected as global demand for semiconductor chips continues to outstrip supply.
  • Chip shortages are expected to wipe out USD 210 billion of sales for carmakers this year, with production of 7.7 million vehicles lost.
  • The semiconductor shortage will severely disrupt the supply chain and will constrain the production of many electronic equipment types.
  • The chip shortage directly impacts consumers as prices of everyday appliances and electronic goods — from TV to smartphones — have increased due to the global supply chain disruption.

Efforts by India to achieve self-sufficiency in the manufacturing of semiconductors:

India is finalising plans to manufacture semiconductor chips in a big way, as a part of its ‘Make in India’ initiative.

The nation is offering more than USD 1 billion in cash to each semiconductor company that sets up manufacturing units in the country.

Chips made locally will be designated as “trusted sources” and can be used in products ranging from CCTV cameras to 5G equipment.

In December 2021, India invited an “expression of interest” from chipmakers for setting up fabrication units in the country or for the acquisition of such manufacturing units.

What are Semiconductor Chips?

Semiconductors — also known as integrated circuits (ICs), or microchips — are most often made of silicon or germanium, or a compound like gallium arsenide.

It’s the thing that makes electronic items smart and faster.

Made from a material, usually silicon, that “semi-conducts” electricity, the chip performs a variety of functions.

Memory chips, which store data, are relatively simple and are traded like commodities.

Logic chips, which run programs and act as the brains of a device, are more complex and expensive.