Name: How the world ran out of a critical technology that powers our cars, phones, and more
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How the world ran out of a critical technology that powers our cars, phones, and more

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advertisementadvertisementBy Hamza Mudassir There’s a global shortage in semiconductors, and it’s becoming increasingly serious. The U.S. is currently reviewing its supply of the technology, following a from President Joe Biden.advertisementadvertisementThe president also pledged $37 billion to cover the short-term costs of rebuilding and securing America’s supply of , which are a fundamental part of microchips and thus integral to everything from computers to smartphones to renewable energy and military hardware.The automotive sector has been worst affected by the drought, in an era where microchips now form the backbone of most cars. Ford is predicting a in production, and Tesla its Model 3 assembly line for two weeks. In the U.K., Honda was forced to its plant as well.Even highly experienced tech companies such as Nvidia and Microsoft are struggling to provide a steady stock of and respectively. It appears that no company, big or small, tech or non-tech, is safe from the wide-ranging impact of the great semiconductor famine of 2021.advertisementWhile it is easy to blame the COVID-19 pandemic for this situation, the truth is that the global semiconductor supply chain had this coming for some time. As much as the world’s semiconductors are manufactured by just two companies, Taiwan Semiconductor (TSMC) and Samsung.The entry barriers into semiconductor manufacturing are astronomically high. There’s a steep learning curve required to set up a semiconductor foundry, entailing an $10 billion to $12 billion and then to become production-ready.Even then, there are no guarantees that a new foundry’s chip yields will match those of the incumbents. Chips rapidly become obsolete, and price pressures are a major problem in the tech sector, so there are lots of risks to profitability.advertisementDue to such harsh economics, it has only made sense for a handful of large players to invest in manufacturing capabilities and then spread those costs and risks across hundreds of thousands of customers. Global tech has historically been very happy to hand the manufacturing reins to TSMC and Samsung. And in turn, this has created the supply-chain equivalent of a house of cards.The pandemic has driven unexpectedly high demand for home electronics such as and gaming consoles, as many people started working from home and seeking of indoor entertainment.Automotive companies had been expecting lower demand, given that car sales tend to move lower in an economic downturn. This, however, proved to be an erroneous assumption, as new car sales started quickly by the tail end of 2020. Automotive companies tried to rebook previously canceled semiconductor orders only to discover that home electronics manufacturers had taken their place.advertisementAt the same time, President Trump’s trade war with China led to new rules that made it harder for Chinese companies to source semiconductors from TSMC and Samsung. With China’s own semiconductor technology inferior to the industry leaders, Chinese tech behemoths such as Huawei in advance of the new restrictions in 2020, soaking up any spare capacity with large orders.But the straw that finally broke the proverbial camel’s back was the in bitcoin prices in early 2021. This increased for the that are traditionally used in mining the digital currency, exacerbating the semiconductor supply issues further.All of this has been enough to cause TSMC and Samsung to run out of capacity and significantly increase lead times to fulfil orders, leading to the drought we see today.advertisementThe share prices of TSMC and Samsung have risen by and respectively in the past 12 months thanks to the supply shortfall. Despite President Biden’s best efforts, the situation is unlikely to improve in the next three years because of all the barriers to entry in this sector.Prices of consumer electronics have shot up, thanks to scalpers who routinely buy graphics cards and consoles at recommended retail prices and sell them for on sites such as eBay.It is only a matter of time before tech manufacturers and retailers decide to increase prices to match the high demand and low supply of the components. Expect to see releases of more expensive variants of existing electronic products hitting the market soon.advertisementJust like in an actual famine, the end consumers of these goods are going to be significantly worse off, with little or no respite coming their way.Hamza Mudassir is a visiting fellow in strategy at Cambridge Judge Business School. This article is republished from under a Creative Commons license. Read the .advertisementadvertisementadvertisementadvertisementadvertisement

advertisementadvertisementBy Hamza Mudassir There’s a global shortage in semiconductors, and it’s becoming increasingly serious. The U.S. is currently reviewing its supply of the technology, following a from President Joe Biden.advertisementadvertisementThe president also pledged $37 billion to cover the short-term costs of rebuilding and securing America’s supply of , which are a fundamental part of microchips and thus integral to everything from computers to smartphones to renewable energy and military hardware.The automotive sector has been worst affected by the drought, in an era where...

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Hamza Mudassir

Fast Company is a monthly American business magazine published in print and online that focuses on technology, business, and design. It publishes eight print issues per year. Fast Company was launched in November 1995 by Alan Webber and Bill Taylor, two former Harvard Business Review editors, and publisher Mortimer Zuckerman.

How the world ran out of a critical technology that powers our cars, phones, and more

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