Semiconductor Shortage

Context:

Recently, there has been an abrupt and cascading Semiconductor Shortage worldwide.

What are Semiconductors?

• A semiconductor sits between a conductor and an insulator and is commonly used in the development of electronic chips, computing components, and devices.
• It’s generally created using silicon, germanium, or other pure elements.
• Semiconductors are created by adding impurities to the element.

Reasons for Semiconductor Shortage

• Rise in Covid-19 cases in supplying countries, especially those in Asia, led to disruption of production (shutdown of factories) thereby causing the current shortage.
• An atrocious winter storm in Texas shutdown semiconductor factories, and a fire at a plant in Japan caused similar delays.
• Also, relatively low margins of Substrate manufacturing have led to its underinvestment and added to the pain of a global chip shortage 
  • Substrates connect chips to the circuit boards that hold them in personal computers and other devices. 
  • Made up of thin copper wire sandwiched in resin, substrates help transmit user instructions to a computer’s chips and relay the answers. 
  • They are necessary because the ultrathin wiring that comes out of chips can’t tolerate a direct soldered connection to a circuit board
  •  Substrate Manufacturing is therefore seen as a backwater of the global chip supply chain.
  • Supplies of substrates is very tight and small disruption in this underinvested sector is causing big worries to chip manufacturers
• The chief executives of Intel and IBM have both said recently that the chip shortage could last two years.

Semiconductor chips and Automobile sector

• Semiconductor chips are integral parts of the power train, chassis, safety systems, advanced driver assistance systems, and other parts of automobiles. 
• They are used more in passenger vehicles compared to commercial vehicles or two-wheelers
• The move to electric vehicles has led to increased demand of chips. For example, a Ford Focus typically uses roughly 300 chips, whereas one of Ford’s new electric vehicles can have up to 3,000 chips
• With supply of semiconductor chips slowing down, the production in automobile sector is also adversely impacted.

Consequences of chip shortage on automobile sector:

• Due to longer lead time — the time between when the order is placed and the shipment is delivered — the automobile sector has been forced to cut down on its production.
• The slowing down of production by big automotive players has led to reduction in new orders being placed to MSME vendors (who supply parts)
• The MSMEs who are vendors and sub-vendors of the automobile industry are now working just 8 hours instead of the 12 hours they normally do. This has not only affected their earning but is also making them to migrate to other sectors. 
• While the local MSME industrial sector was slowly coming back to normal after the second wave of Covid-19, the recovery has been hampered by the high price of raw material and low orders.

How is the chip crisis playing out in geopolitics?

• The global chip crisis and geopolitical tensions with China have shifted focus back on semiconductors.
• The US, which was once a leader in chip manufacturing, wants the crown back.
• The protectionist US is looking to bring manufacturing back to America and reduce its dependency on a handful of chipmakers mostly concentrated in Taiwan and South Korea.
• China’s renewed aggression on Taiwan is also being seen in light of the chip crisis.

What is being done to address the situation?

• Firms like Samsung, Tata Group are sinking huge investments into semi-conductor production
• The US, Europe and China have committed billions in subsidy to on-shoring production.
• Long-term supply contracts are being signed by automakers

How can India play its role?

• Since, chip fabrication is capital-intensive (an average sized facility costs $7-10 billion) with long gestation and rapid technology, it is difficult for India to strive for self-sufficiency on chip fabrication.
• But, government-owned semi-conductor facilities already operated by ISRO and DRDO can be expanded and upgraded
• Government can attract global manufacturers by showcasing skilled talent pool in R&D, low labour costs, large market and policy support (Production-linked incentive scheme)

Way Forward

• Emerging technologies, especially, Internet of Things, artificial intelligence, augmented and extended reality and blockchain are gaining prominence across industries. With these applications gaining traction across sectors, the need for specialised sensors, integrated circuits, improved memory, and enhanced processors is increasing.
• India is finalising plans to manufacture semiconductor chips in a big way, as a part of its ‘Make in India’ initiative. The nation is offering more than USD 1 billion in cash to each semiconductor company that sets up manufacturing units in the country.
  • Chips made locally will be designated as “trusted sources” and can be used in products ranging from CCTV cameras to 5G equipment.
  • In December 2021, India invited an “expression of interest” from chipmakers for setting up fabrication units in the country or for the acquisition of such manufacturing units.
• This is all being done to achieve self-sufficiency in the manufacturing of semiconductors, to ensure better control over data security and prevent countries in the world from being held to ransom by specific members of the existing semiconductor supply chain.
• It is clear that semiconductors are changing the game in our modern, fast-moving world. Therefore India should give semiconductors the status of “critical infrastructure” in most countries, in the near future.

Source: Indian Express

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