Shortage of Semiconductor Chips

News: A shortage of inputs, especially semiconductor chips, has made India-based car manufactures and premium bike makers curtail production across categories.

Semiconductor Chips:

  • Semiconductors are materials which have a conductivity between conductors (generally metals) and nonconductors or insulators (such as most ceramics). Semiconductors can be pure elements, such as silicon or germanium, or compounds such as gallium arsenide or cadmium selenide. Conductivity is the measure of the ease at which an electric charge or heat can pass through a material.
  • semiconductor chip is an electric circuit with many components such as transistors and wiring formed on a semiconductor wafer. An electronic device comprising numerous of these components is called Integrated Circuit (IC), and can be found in electronic devices such as computers, smartphones, appliances, gaming hardware and medical equipment

Details about recent crisis:

  • The trigger point was the beginning of the Covid-19 pandemic and the subsequent lockdowns across the world that forced shut crucial chip-making facilities in countries including Japan, South Korea, China and the US. A key feature in a chip shortage is that it almost always causes cascading effects, given that the first one creates pent-up demand that becomes the cause for the follow-up famine.
  • The COVID-19 pandemic caused disruptions in supply chains and logistics. This is coupled with a 13% increase in global demand for PCs owing to some countries’ shift to a stay-at-home economy.
  • This has impacted the availability of key chips necessary for the manufacturing of a broad range of electronics being a necessary component of every industry.

Impact of such shortage:

  • Consumers of semiconductor chips, which are mainly car manufacturers and consumer electronics manufactures, have not been receiving enough of this crucial input to continue production.
  • There were two reasons for this: a steady decline in input prices and improvements in the processing power of chips. The number of transistors mounted in IC circuit chips has doubled every two years.
  • Notably, the increase in chip consumption over the last decade is also partly attributable to the rising contribution of electronic components in a car’s bill of materials.