Editorial: When chips are down

Crisis in the semiconductor sector has already led to lower production, lower discounts and higher prices

The coronavirus pandemic has left a debilitating impact on the global semiconductor sector, an industry that has an equal bearing on both high technology users and low-end consumers of electronic goods. The impact of the acute shortage of semiconductors is bound to be felt in the upcoming festive season in India due to disruptions and delays in the supply of electronic goods and also a possible increase in their prices. The impact of the global chip scarcity is all-pervading: automobiles, smartphones, laptops, tablets, consumer durables, gaming consoles and other electronic products. The crisis in the semiconductor sector has already led to lower production, delays in delivery time, lower discounts and higher prices. Even the optimistic estimates say the shortage will last till 2022, leading to prolonged supply disruptions across various segments. An analysis by Goldman Sachs suggested that at least 169 industries have been impacted by the global chip supply shortage. The automobile industry has been the worst hit. India is no exception to the enveloping crisis as the domestic automobile industry accounts for 10% of the overall semiconductor demand. Already battered by the Covid-induced disruptions, the automobile industry will take a much longer time for recovery because of the production disruptions due to semiconductor shortages. According to the Society of Indian Automobile Manufacturers, automobile wholesalers in India declined 11% year-on-year in August while Maruti Suzuki, India’s largest carmaker, will see a 60% cut in production in September.

Similarly, Mahindra & Mahindra said it would cut output by 20-25% in September due to the semiconductor shortage. The pandemic is not the only factor behind the shortage. The trade war between the United States and China has accentuated the crisis. For instance, Huawei, the Chinese major which supplied American chipmakers, has been blacklisted by the US government. The supply chain disruptions due to the pandemic, a sharp rise in demand for electronic goods as more people are now working from home and lack of investment in chip building capacities are some of the reasons behind the global chip shortages. And, they cannot be manufactured at short notice as the process is complex and time-consuming. Made of silicon, chips are tiny objects that perform a host of functions such as powering displays and transferring data. Integrated circuits, microchips, transistors and electronic sensors are built with semiconductor materials. They enable key functions such as high-end computing, operation control, data processing, storage and input and output management. Manufacturing a chip typically takes more than three months and involves giant factories, multi-million-dollar machines and lasers. Many technology companies, like Apple and Tesla, have begun developing their own chips, a move that is likely to help alleviate the current supply concerns.

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