Industrial

The semiconductor shortage is continuing to have an impact

31st August 2021
Kiera Sowery

Semiconductors are critical components in many electronic devices such as smartphones, cameras, televisions, automobiles, LED bulbs and household appliances, as well as many other devices we come into contact with every day. It is no surprise, then, that a shortage of semiconductors is very damaging for a multitude of industries, but what is causing the shortage?

What is causing the semiconductor shortage?

Fast-growing technologies 

As mentioned above, semiconductors are required for a huge range of electronic devices. Some markets, however, are growing much faster than others and putting significant pressure on already strained manufacturers. Smartphones and IoT devices, for example, need semiconductors for the microchips they use and are burgeoning industries that have better profit margins than some other industries that also need the components.

New models of smartphone brands are released every year and more and more household devices are becoming IoT compatible, and manufacturers can’t keep up.

US-China trade war

Semiconductors are key components in microchips and many US-based microchip manufacturers encountered difficulties when they were forced to cease trading with Huawei, one of their main buyers. These manufacturers naturally became hesitant to continue producing microchips in the same volume without a reliable destination for the products.

When trade partnerships break down between powerful nations, it also affects other countries who may not be involved in the dispute but benefit from the partnership for their own manufacture and production.

COVID-19 pandemic

New variants of the disease and regional spikes in cases are still an issue, but many industries are still playing catch up after the widespread disruption of the initial wave of the coronavirus pandemic.

Many businesses were forced to shut down temporarily, and even those that didn’t couldn’t operate at full functionality. Social distancing measures limited the number of employees available on-site, many became ill and had to take time off, and travel restrictions meant significant delays for deliveries.

Many businesses are still recovering and, in an industry that was already struggling with long lead times and component shortages, existing problems were only compounded.

An unstable market

Another effect of the pandemic was an unstable market that made it hard for businesses to accurately forecast sales, which has a knock-on effect with suppliers and manufacturers of key components. Due to different regions going into lockdown and having varying levels of restrictions imposed upon them, consumer demands changed very quickly.

When people were forced to stay home as part of national lockdown rules, demand spiked for games consoles, personal computers and tablets, and the demand for automobiles dropped dramatically. Now, however, many people are returning to work while others are choosing to continue working from home and car sales are rising again.

What industries are being affected by the semiconductor shortage?

Semiconductor use is so widespread that the shortage is affecting almost every industry that requires electronic components.

The automotive industry has been hit particularly hard by the shortage; semiconductor chips are used in driver assistance systems, digital speedometers, engine management and entertainment systems, with the shortage causing vehicle prices to rise and availability to fall. Car manufacturer Toyota has recently had to cut its global production by 40% as a result.

Consumer electronic goods, as mentioned earlier, are a huge part of the semiconductor market. The shortage has affected the production of television, smartphones, and appliances at huge companies like Samsung, Apple, and LG.

How can businesses deal with the semiconductor shortage?

While there are some positive developments, such as China increasing their own production of semiconductors rather than relying on outsourcing, waiting for the market to settle may not be the best approach for OEMs and CEMs in need of components.

If manufacturers are unable to source the components they need through their usual procurement channels, then it may be time for a change in approach. Thorough and regular risk assessment will help to identify weaknesses in the supply chain that are susceptible to market changes such as shortages. Strategic sourcing will also help to align procurement activities with the current market through continual adjustment rather than sudden, drastic changes.

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