A brief explanation of the semiconductor crisis

Semiconductors are one of the most important components of almost all the electronic devices we use today, and are in high demand from corporations globally. With the rise of the internet of things, and our general reliance on more and more complicated technologies, the value and necessity of semiconductor manufacturing on a large scale will only become more important. Currently the world is in the midst of a major shortage that isn't expected to lift for a long period of time, but how did we get here and what have the effects been?

How we got here
As with the majority of today's supply chain issues, it started with the COVID-19 pandemic. When mixed with the spike in demand for electronic devices that has occurred over the past few years and shows little sign of slowing, semiconductors are in short supply. While manufacturing companies are attempting to increase their production output, building new facilities takes time as the product is very specialized and difficult to create. Even the largest companies in the world are swamped by demand. Taiwan's Semiconductor Manufacturing Company, the world's largest manufacturer, has little extra capacity to create more, and other producers are sold out of product completely.

What does this mean?
Virtually every industry has felt the effects of the semiconductor shortage. According to Fortune, the global auto industry lost $210 billion in revenue in 2021 alone, and the rising prices of semiconductor chips have been passed on to the end consumer by increasing the price of new automobiles. So far, in 2022 alone, the chip scarcity has prevented the manufacture of 2 million new cars, putting a dent in the total supply. While the shortage is affecting most manufacturers of electronics, the broadband and medical device industries being the hardest hit along with auto manufacturing, according to Bloomberg. 

For other organizations which rely on these chips, depleted supply has left little room for error in supply chain management. The average inventory of semiconductors for an American company that relies on them was 40 days. But by 2021, that fell precipitously to only five days. According to a report by the United States Department of Commerce, this lack of inventory means that any disruption of major semiconductor manufacturing plants, such as a natural disaster, has the potential to damage manufacturing capacity in the US.

Do we need to worry?
While new facilities are being created to help alleviate this swing in supply and demand, some worry it might not be fast enough. The CEO of Intel attributed weakened second quarter results to lowered quantities of the semiconductors required for key manufacturing operations, bottlenecking the company. He was quoted in an interview with CNBC as saying "That's part of the reason that we believe the overall semiconductor shortage will now drift into 2024, from our earlier estimates in 2023, just because the shortages have now hit equipment and some of those factory ramps will be more challenged." With the increase in manufacturing capacity ramping up, bank on the shortage to end in the next few years, but also expect a little more tightening of the belt for a while longer.