Chips All Out

Industry Feb 10, 2022

Every aspect of modern life has been digitized; no field or sector has refused the gift of computation and communication. This substantial dependence on electronic devices lack of them entails the world economy to shift dramatically, from a significant increase in their prices to avoiding their use entirely, the latter of which is nearly impossible. The world has been observing a steep rise in prices since 2020, primarily because of the shortage in the foundational unit of hardware systems: semiconductor chips and integrated circuits. These chips are fundamental building blocks of all computational devices; lack of them affects the world in a way lack of paper would have in the 18th or 19th century when the entire civilization exchanged information and currency on one commodity. Though the situation may not seem like a doomsday event, it has become a cause to worry as we might end up having more data than we can process, while the shortage limits the scope of research and development. In other words, the digital world is currently walking on crutches, and without proper measures taken, it may lead to the dark age of the information world.

Semiconductors are that to the software world, what bricks are to a hospital, the skills of the doctors and surgeons are inapplicable without the infrastructure set up to encompass the personnel; similarly, the information manipulated will be immaterial without the capability to retain it. Semiconductors in higher complexity form transistors, integrated circuits, microprocessors and so on with upper limit as quantum computers in scope of its application.

The production of chips is bifurcated into two industries, fabless and foundry; the former is responsible for designing microchips while the latter for manufacturing them. The chip production process involves highly skilled work and equipment intensive processes, approximately taking 5-6 months to produce chips ready for sale. The work environments where silicon discs called wafers are made must be a hundred times cleaner than surgical operating rooms. The most crucial part of chip production is lithography, which is responsible for adding layers of circuitry to the wafers. A single lithography machine's price can range from 25-100 million dollars; hence their number in a factory defines chip output. Though lithography machines are essential, it takes 15 months to receive a new tool, making a boost in current chip production impossible.

Up until recently, both the fabless and foundry industries worked in tandem to pump out a steady supply of chips. Still, countries like the USA have shifted to support the fabless factories system while contracting out orders to manufacture their chips to Singapore and Korea leading to an imbalance in the cycle of chip creation. The faltering of chip production was further put under strain due to the increased demand for electronic devices during the Covid pandemic; as most people opted to work from home, they relied on electronic devices extensively. While several chip manufacturers had reduced output due to lockdown restrictions, leading to a steady rise in chip price. One of the largest foundries in the world, located in Taiwan, responsible for 3/4th of chips produced in east Asia, faced several hurdles from strains due US-China trade war to severe drought in Taiwan restraining the water purification processes and significantly damaging their output rate. All such events, in succession, created a domino chain destabilizing the electronics and Information sector, with indirect ripple effects across the world economy.

The matters were worsened with the release of new flagship devices, especially in the mobile and video game console industries. Companies like Sony and Microsoft couldn't keep up with the demand for the new consoles, unable even to meet the preorder sales; it is predicted that the consoles' production will be pale compared to their need till mid-2022. While the automobile industry has been hit the most by this chip catastrophe, costing a loss of 200 billion dollars in revenue, with the lowest car registrations witnessed in the past decade.

Immediate measures and steps taken to maximize chip production are pretty obvious to avoid massive cuts in sales for most industries. Hence, the American administration has proposed to invest 50 billion dollars in the semiconductor market. Analysts foresee a rise of 9% in global chip demand in 2022 and require an investment of 3 trillion dollars in the chip manufacturing industry to keep up with the need over the next 3 decades. As global foundries are being pushed to work to their maximum capacity, we can arrive at a positive outlook suggesting after overcoming the hurdle of chip shortage, subsidization of prices, and a friendlier environment to push computational limits, wait ahead.


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