The semiconductor shortage – How the dominoes will affect the wider industry.

Recent reports show that Samsung is being affected by the semiconductor shortage, which will hurt Samsung's customers. Was the response of the semiconductor industry to the shortage of automotive components appropriate, and how will the component shortage continue to affect markets?

Why are many components facing a shortage?

It has been covered many times on Electropages about the shortage of automotive components due to the COVID pandemic. Still, this shortage is now affecting components that have nothing to do with the automotive industry. As previously discussed, the shortage of automotive components arose when global lockdowns caused the automotive industry to suspend sales and manufacture of new vehicles. As such, semiconductor foundries halted the production of automotive components favouring commercial components whose demand grew.

However, when the automotive industry decided to resume production, it quickly became apparent that there were no more automotive components available. But automotive industries cannot expect rush orders for automotive components to be fulfilled in 24 hours as such semiconductors take months to fabricate (sometimes up to a year).

Why the Response of the Semiconductor Industry is Bizarre

Throughout the entire pandemic, the response from manufacturers of automotive components has been utterly bizarre. Of course, it is understandable for the semiconductor industry to halt the production of automotive components when there is no more demand. Still, while this makes sense for basic components such as resistors and capacitors whose production can be turned around fairly quickly, it does not make sense for semiconductors.

The COVID pandemic has been bad, there is no doubt of that, but to behave as if the automotive industry would never return is just strange. As such, it would have made more sense to scale production down for half a year and then return to production in anticipation of the automotive industry restarting. In fact, knowing the long delays needed to produce such parts would have been more appropriate for semiconductor suppliers to discuss with automotive manufacturers when they expect to return to production.

Some may suggest that the two industries were in talks, but the resulting component shortage tells a different story. Poor planning resulted in an automotive component shortage which has hindered the automotive industry, and all of this is a result of the long turnaround time on producing semiconductors.

But wait, it gets funnier, because how does the semiconductor industry respond to the shortage of automotive components? Instead of just producing them at the previous rate, they have prioritised their production, and the result of this is regular components now facing shortages too! This prioritisation will not produce automotive components any faster. If the production rates of these parts is too great, then we could see a surplus of automotive-grade parts in 6 months. 

Commercial Companies to Take the Next Hit

With standard components now beginning to face shortages (as we saw in a previous article), manufacturers of commercial products such as smartphones, computers, and everyday devices will now feel the impact. Again, however, companies use chips produced by fabless companies who will feel the largest effect. This results from fabless businesses using companies such as TSMC who have turned their attention to automotive parts. Such results can already be seen in the availability of GPUs, CPUs, and microcontrollers.

As such, engineers may need to start thinking about the future, and how the current component shortage will affect them down the line. 

• The sudden production of automotive parts will create a surplus as foundries overproduce to meet demand

• The prioritising of automotive components creates a shortage of commercial-grade parts

• Fabless companies will be most affected by the current shortages

• Companies such as Intel could gain a lead over AMD and NVIDIA as they fabricate their own chips

• Complex devices such as FPGAs, CPLDs, and microcontrollers will be in short supply

• Installation of next-generation networks (5G) will be hindered

• The price of consumer electronics will undoubtedly rise due to the lack of availability

• Demand will increase for second-hand hardware

• Demand for repairs will increase and may encourage to boost the repair industry

• After realising their mistake, semiconductor foundries will switch over to making consumer electronics

• The component shortage will be replaced with overabundance, and as such late 2022 could see cheap components