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Global chip shortage, tech companies at major crisis

Global chip shortage, tech companies at major crisis

Are you planning for a new car, mobile phone or washing machine anytime now? A global shortage of computer chips could mean, you have to wait a while and pay more. The world is in a global chip shortage because of demand for semiconductors surging far beyond capacity for supply. The shortage is crippling players in industries such as automotives and smartphones and makes it even worse for carmakers.

What is a silicon chip?

An electronic equipment consists of a small crystal of a silicon semiconductor (basically sand that contains as much silicon as possible) fabricated to carry out a number of electronic functions in an integrated circuit. The mineral quartz is ideal for this purpose because of its two main components which are silicon and oxygen. It is also known as chip, micro chip, microprocessor chip etc. Silicon possess properties of both a metal (which conducts electricity) and an insulator (which blocks electricity).

What casuses the shortage?

Chip shortage typically occurs when there is some sociological or physical change that prevents certain chips from being produced in large numbers to satisfy demand. The coronavirus pandemic, which plunged the global economy into recession last year, upending supply chains and changing consumer shopping patterns. Carmakers cut back orders for chips while tech companies, whose products were boosted due to lockdown, increases as many as they could.

The computer chips in highest demand are not particularly sophisticated or expensive. But they’re being used in everything from kitchen appliances to washing machines and electronic gadgets.

A severe case of chip shortage occurred in 1988 after a pact between American and Japanese chip manufacturers which resulted in severely reduced production. Changing to newer production methods also causes chip shortages as the new factories are not built quick enough to meet the demand for the newer chips. Furthermore, customers often want the newest chips available and may not be willing to settle for older chips, so companies must wait for newer chips to put into their products.

How chip shortage affects industries?

Firstly, lets check this out with the automobile industry.

An average car has between 50 and 150 chips. They’re used in a growing number of applications, including driver assistance systems and navigation control.

When the pandemic forced carmakers to temporarily shut factories last year, semiconductor manufacturers reassigned spare production to companies making smartphones, laptops and gaming devices — products in high demand from housebound consumers.

Then, car sales bounced back faster than expected and automakers responded by ramping up production. But they found themselves at the back of the line for chips.

Taiwan Semiconductor Manufacturing Company, for example, is responsible for producing about 80% of the microcontroller units used in cars, according to a Bain & Co. report. These parts manage functions such as power windows, braking and headlights. TSMC is pouring $100 billion into advanced chips over the next three years to keep up with rising demand.

Secondly, the consumer electronics manufacturers being slammed.

Apple’s CFO, Luca Maestri has said that the company’s revenue will be $3 billion to $4 billion lower this quarter due to “supply constraints”. That includes problems procuring chips, which are expected to affect the production of iPads and Macs.

On the other hand, Samsung, the world’s second-largest buyer of chips for its products after Apple said that the company might have to postpone the launch of its high-end smartphone due to the shortage, despite also being the world’s second-largest producer of chips.

Meanwhile, Intel is in talks with companies that design chips for carmakers about manufacturing those chips in its factories. If successful, Intel could be producing chips within six to nine months, according to CEO Pat Gelsinger.

Beyond cars and smartphones, computer chips are used in all household goods, including televisions, washing machines and refrigerators. Analysts have warned that these could be next in the firing line.

Alternatives of Silicon

Graphene has a distinct ability to replicate complex materials in a more cost-efficient manner and its outstanding properties is its ability to take on the characteristics of other materials. One example of this is the production of gallium nitride, which is a popularly used replacement for silicon in electronic devices.

While gallium nitride has a better performance in high energy and high heat applications than silicon, it is extremely cumbersome to produce incurring significantly higher financial costs. Graphene has shown great promise to fix this issue.

Perovskites are another material that pose a threat to silicon dominance, but in the field of solar energy and photovoltaics. The laser refinement process that creates monocrystalline or polycrystalline silicon is much more tolerant to imperfections with perovskites. Silicon must be of a much higher standard to perform these tasks than perovskites.

Will there be a hike in price?

“Chips are everything and There is no sign of supply catching up, or demand decreasing, while prices are rising across the chain,” says Neil Campling, media and tech analyst at Mirabaud. It can take up to two years to get complex semiconductor production factories up and running, and manufacturers are in the process of significantly raising prices for the second time in less than a year.

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