Supply Chain Disruption Hits the Semi-conductor Industry

Posted on June 2, 2021

Supply Chain disruption hits the Semi-conductor industry
Covid-19 has severely tested the robustness of the global trade framework. From factories shut down by lockdowns to ships stranded in quarantine, there has been no lack of hurdles holding back economic recovery across the world.

With a year of experience chafing under coronavirus-related restrictions, many industries have started limping back to normal. Things like groceries or retail have more or less returned to their pre-Covid status, having ramped up production to meet the increased demand.

But for tech-intensive sectors, building up an alternate supply chain overnight is not that easy. This includes chemicals, medicines, and of course, computing devices.

How the Semiconductor Industry Works
Technology is complicated. A simple computer has dozens of separate, critically important parts that need very specialized processes to manufacture.

By far the most difficult to reproduce component is the silicon chip. The core technology powering any computing device, this thin wafer of silicon houses circuitry so minute and so complex that you would need a microscope to understand its inner workings.

As a result, very few manufacturers have the technical know-how to produce this important component. In the past, this has rarely been a problem, since constant production and large stocks could easily address any surge in demand. But due to labor shortages and transport difficulties, the industry suddenly finds itself without any chips to outfit new systems with.

Taiwan: The Hub of Semiconductors
You heard that right. It is Taiwan, not China, that stands at the forefront in the semiconductor manufacturing scene. More than 70% of the world’s silicon is fabricated in this island country’s factories, shipping out companies across the world.

Concerns have always been raised about the global dependence of such a critical resource on a single country, but it took the impact of an epidemic to truly drive home this point.

Be it AMD, Intel, or Nvidia, the responsibility for actually making their CPUs and GPUs falls to Taiwan Semiconductor Manufacturing Company (TSMC). And while the company is doing its best to supply the world through these trying times, the demand is just too high for it to keep pace with a reduced workforce.

The Scope of the Issue
Currently, the industry is in crisis mode. Taiwan has been struck hard not just by the coronavirus but also a famine on the mainland, severely impacting the labor pool..

The trickle-down effect has paralyzed orders for both OEMs and system integrators, who are completely reliant on this supply of silicon to assemble motherboards for all kinds of computers. And as this supply-demand mismatch continues, the meager stocks are being routed almost completely toward the manufacture of laptops and PCs.

Unprecedented Demand
With professionals of all stripes working from home right now, everyone wants a computer. Even those not looking to work are turning to devices like smart TVs or consoles for entertainment. Then there are companies upgrading their infrastructure to better deal with the increasingly digital nature of business.

The result of all these abrupt changes is an unprecedented demand for all manner of computing devices in every sphere of life. The problem is that all of these systems are ultimately powered by the same silicon chips, and there are only so many of them available right now.

OEMs are therefore forced to choose which sectors to service first. Unsurprisingly, they are choosing to prioritize personal computers and laptops, as the profit margins are higher in that space.

The Road Ahead
For a short while, things appeared to be getting better. East Asia, including Taiwan, had apparently beaten the virus and were on the road to recovery. With the Suez canal opening up again, the pressure on shipping was easing too.

But then Covid-19 made a comeback. Taiwan, lauded internationally for controlling the spread of the disease, reported an outbreak of the virus. At the time of writing, coronavirus cases are at a peak in the country, once again stifling trade and shutting down factories.

There are efforts to establish other manufacturing centers, but it might take years for such initiatives to give results. For now, the technology industry must contend with a broken global supply chain and a waiting time of months for crucial computer components.