Why is There a Semiconductor Shortage and What Does it Mean for the UK?

Semiconductor

Currently, more than a hundred industries produce products like vehicles, smartphones, healthcare systems, and more – depending on computer chips, mostly known as semiconductors.

The global semiconductor industry is facing a major shortage, causing disruptions in the production of a wide range of consumer and industrial products. 

About 169 industries are being affected by the low production of these chips, and companies all around the world are struggling to secure them to keep their operations running. Consumers are seeing delays and shortages of products ranging from smartphones to automobiles. 

The shortage is expected to continue for the foreseeable future, as manufacturers work to ramp up production and address the underlying causes of the shortage.

In May 2022, the Business, Energy and Industrial Strategy (BEIS) selected a committee that ran an inquiry into the UK’s supply of semiconductors and its domestic semiconductor industry. 

Reducing the impact of these events on the UK’s ongoing energy transition is a top priority for the government, and a strategic method to guide the semiconductor supply is crucial.

What is the Semiconductor Shortage?

The semiconductor shortage refers to the current global shortage of semiconductor chips, which are tiny electronic components that are used in a wide range of consumer and industrial products. 

Semiconductor chips are an essential component of many electronic devices, including smartphones, laptops, televisions, automobiles, and industrial equipment. They are also used in a variety of other products and systems, such as appliances, medical devices, and military equipment.

Different factors have led to a shortage of semiconductor chips, thereby causing delays and disruptions in the production of a wide range of products. 

While the shortage means most consumers can’t easily purchase these technology products, there has also been an inflation in the prices of such products on sites like Amazon and eBay.

The Causes of the Semiconductor Shortage

Several factors have contributed to the current global semiconductor shortage. Some of the main causes of the shortage include:

  • COVID-19 Disruptions 

The COVID-19 pandemic has disrupted global supply chains, including those in the semiconductor industry. This has caused delays and shortages of raw materials and other components used in the manufacturing process, leading to reduced production of semiconductor chips.

Many countries in East Asia are still struggling to recover from the impact of the COVID-19 pandemic and have not yet returned to normal levels of operation. As a result, they have been unable to meet the strong demand for various goods, including semiconductor chips. 

While other parts of the world have largely returned to pre-pandemic levels of activity, these countries are still unable to fully operate due to ongoing safety concerns.

  • The Taiwanese Drought 

The Taiwanese drought is also a part of the cause for the shortage of manufacturing chips, this is because the process requires the use of purified water.

Lack of rainfall meant that water was very scarce thereby impacting how quickly chips could be manufactured.

  • Rising Demand for Electronics 

Over the last year, most people needed to adapt to working from home, which means they need to make their houses as comfortable as they can. 

The common component for all these required gadgets is the semiconductor chip and the increase in demand for these devices has been noticeable worldwide. This strong demand has put pressure on the semiconductor industry to ramp up production to meet the demand.

  • Shortage of Good Raw Materials 

There is currently a shortage of some of the raw materials used in the production of semiconductor chips, including machines and certain chemicals. This shortage has further reduced the ability of manufacturers to meet the strong demand for semiconductor chips.

A solution to this will be to build manufacturing units all around the world but it can’t be achieved in a short period. The USA has also invested a lot of money to compete with the Asian stronghold of the production of semiconductors in the market but it’s still not yielding. 

  • Issues with the Supply Chain System 

The pandemic still has a significant negative impact on the shipping and transportation industry, which is still feeling the effects. The supply chain has been disrupted, leading to shortages of storage ports, shipping containers, and employees to take on available jobs. 

Even if semiconductor production were operating at full capacity, access to them would be limited due to shortages of containers and personnel in the supply chain industry.

  • Effects of the War

The conflict in Ukraine has also caused issues for the semiconductor industry, specifically in the supply of neon gas, which is used in the lithography printing process that is essential for chip manufacturers. 

Ukraine accounts for approximately 40-50% of the world’s neon supply, and the two leading companies that sell the gas, Ingas and Croyin, stopped operations when the war began. 

While some in the industry still say that there are still sufficient stocks of neon, if the war persists for an extended period, shortages may occur.

Impact of the Global Semiconductor Shortage in the UK

The global semiconductor shortage has had a range of impacts on the UK economy and various industries. Here are some of the major impacts: 

  • Massive disruption and damage to profits in the automobile industry and car supply chain businesses. Many car manufacturers in the UK have had to reduce production or halt it entirely due to a lack of semiconductors. For example, Ford, Toyota, and VW produced fewer of their less thriving vehicles. 
  • Electronic manufacturers like producers of smartphones and laptops have had to delay model releases. This has affected consumer demand and the financial performance of companies in this sector.
  • There have been shortages of game consoles, which were aggravated by a rise in demand during the lockdown period. For instance, Microsoft experienced production issues with the Xbox Series X/S. This also had a ripple effect on retailers of gaming consoles.
  • Many other contributing companies who join hands with the semiconductor industry are also suffering losses. It has been very difficult for manufacturers to obtain all the components and materials they need for a particular system from one place and it keeps disrupting production. 

What Does This Mean For Your Business?

In recent years, almost every business that relies on semiconductor microchips for manufacturing or that sells products that contain these chips has faced challenges due to production shortages and delays. 

The near future remains uncertain and has the potential to further disruption and shortages that could continue to impact operational decision-making, harm profits, and have a negative impact across supply chains.

There are concerns about China’s potential threat to Taiwan and its impact on supply, but the US has passed legislation to increase domestic semiconductor manufacturing even though building plants may take time. 

Japan and the EU are also investing in and expanding their facilities to help address supply issues. For example, Intel is planning to invest €33 billion in semiconductor research and manufacturing in Europe, this could potentially reduce the reliance on semiconductor production in Asia in the long term.

However, Intel has also called on the UK to develop a microchip strategy, warning that the country risks falling behind in chip supply. The future of the shortage for the semiconductor industry is uncertain and the level of how it may affect UK businesses, but there will likely be additional challenges in the coming years.

Frequently Asked Questions about the Global Shortage 

Here are a few questions we can answer regarding the semiconductor shortage and how we can help. 

  • Why does the semiconductor shortage matter?

Semiconductors are critical components in the production of many technological devices and the shortage will mean that these products will be hard to obtain. 

The shortage matters to both producers and consumers alike and the growth of many businesses are dependent on these chips 

  • How can manufacturers cope with the shortage?

Manufacturers can try to anticipate the impact of the shortage on their operations and plan accordingly. This will involve seeking out suppliers who have a good track record of meeting delivery schedules and prioritizing orders for essential products 

If possible, they may also consider stockpiling semiconductors in anticipation of future shortages. However, this option may not be practical or cost-effective for all producers.

  • When will the shortage end?

It is difficult to predict exactly when the semiconductor shortage will end.

Some experts agree the shortage will continue into 2023. They have suggested that the shortage may last for several more months or even longer, depending on how these underlying issues are addressed.

It is also possible that new factors may emerge that could further impact the supply of semiconductors. No one can predict when the shortage will end.

Conclusion

The global semiconductor shortage has had significant impacts on various industries and economies around the world. It has led to production delays and shortages of electronic devices and components disrupted supply chains and had negative financial developments for various businesses. 

Efforts are being made to address the shortage, such as increasing production capacity and improving supply chain management, that is where we can assist you and your business. 

We are a UK-based independent distributor of Electronic Components for manufacturers globally. Our primary goals are to keep your production running by way of shortage supply in addition to maximising your ROI on the excess stock.
Reach out to us for all issues concerning the distribution of electronic components

Emily Lawrence

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