Since the start of the coronavirus pandemic, consumers have increasingly run into problems when trying to purchase particular electronics or products that require semiconductors to functionally operate. This is due to an unprecedented shortage in the supply chain on various levels stemming from the semiconductor industry.
Though this particular industry rarely finds itself in such a prominent spotlight, a confluence of factors, of which the pandemic was only one (though a major contributor), has led global focus to turn to the shortage of the small chips that are used to power everything from phones, computers, various high-tech consumer electronics, to various car functions (including seat control, interior lighting, blind-spot detection).
So what happened to trigger these semiconductor supply problems, exactly?
Shifting Demand, Changing Supply
To some degree, everyone understood that we are part of a world vastly reliant on semi-conductors but the dilemma that spawned from 2020 really highlighted the pressing need for their availability. The semiconductor industry had some lingering problems to begin with, but when the COVID-19 pandemic gripped the world in early 2020, the pushes and pulls of supply and demand forced the semiconductor industry to shift gears.
As the world went into lockdown, there was suddenly far less travel. Auto dealers, much like most other businesses, experienced a dramatic collapse of customers, who were confined to their homes, with only a tiny percentage interested, looking, or capable of purchasing a new vehicle, dropping the demand for semiconductors. Many auto-workers being forced to stay at home added to fewer vehicles being produced with slower turnaround times, resulting in the output of newer vehicles produced dropping suddenly and dramatically.
In the meantime, consumer spending shifted to other industries. While the necessity for automotive semiconductor chips dropped, the need for new electronics skyrocketed. Many people began to work from home as they sheltered inside, suddenly growing the need for computers and office display equipment.
With children’s education moving from the classroom into the home, laptop and tablet demand exploded. While many schools would eventually provide laptops to their students, early on in the pandemic there was little recourse but for children to use devices they already had in the home or to obtain new ones. Since many parents were using the existing home devices for their own jobs, there was a need for a higher than normal level of purchase of new computers.
With kids at home and social life largely curbed, television and gaming system demand was bolstered. Communication means, especially for those who needed reliable phones for work or to make online purchases also grew rapidly with cell phone demand quickly rising. Home security took on a more prominent role as smart home devices and camera demand also rose.
The Pandemic Effect
The semiconductor industry had to radically shift its production output with all of the pandemic demands pressed upon it. Compounding this overhaul, they also had to make accommodations for how their factories could safely operate under the strain of staff shortages. Many of the industry’s workers took time off to attend to being ill, taking care of sick family members, or simply out of precautionary measures. Some manufacturing sites simply did not have the manpower to stay operational and were shut down.
As the pandemic carried on, semiconductor production shifted drastically to meeting those needs that people presently had. The automotive industry bounced back faster than expected, but it isn’t like the manufacturing plants could simply turn around and start making auto semiconductors again. The changes they made shifted the calibration and function of the equipment to make chips for the powering of other devices, far more prominent in demand than vehicles.
The electronics industry felt the wrath of this changeover as well. While production did shift, the effect was not (and could not be) immediate. With the demand for vehicles coming back within about a year of the pandemic’s start, it became necessary to shift more focus back to that. But while medical breakthroughs started to drag humanity out of the pandemic’s grip, the world would not go back to the same place as it was in the pre-pandemic era.
Many companies and employees realized that if warranted, they could perform their jobs fully from home, or at least inside of a hybrid model. Many companies even shifted their staff to a permanent work-from-home environment, shutting down offices around the world. As more people were working from home continuously, the demand for consumer electronics remained high, with earlier projections of people buying electronics being trumped by reality.
As the automotive industry started to come back, the resources for the production of semiconductors for vehicles were still scarce. Production manufacturers realized that they were stretched thin not only in terms of manpower, with many leaving the industry for health and safety reasons, but the discovery that the components needed for the scale of chip production that was demanded were also experiencing a shortage.
The Challenges Of Recovery
As more people got vaccinated and in-person presence anxiety lifted, people found the desire to be out on the road more, with many wanting to purchase a new vehicle. However, the microchip production industry had already changed up production lines to accommodate demands, and they could not simply switch back to the previous methods.
The standard 8-inch silicon wafer traditionally used for the production of chips for automobiles was also much harder to find as chip foundries updated the production processes to larger ones to accommodate other electronics. Therefore, while the demand for semiconductor electronics went back up, the raw materials needed for their production were quite far behind in availability. Considering that many semiconductor manufacturers are seeking to ramp up production, they are all dipping into the same pool of resources, but the stock of products and equipment didn’t magically rise, it also needs to be generated, and expedition of that process is another significant hurdle to clear.
Now the chipmakers faced a new challenge. Not only did they need to shift production lines to the older ones in order to produce more auto chips, but they also had to keep up, and even ramp up, production of other consumer electronics at a rate that far surpassed what they needed before. To meet the growing demands, chip manufacturers invested in new production methods and secured new facilities, but this process is also not an immediate one. After all, it takes time to set everything up to be a finely-tuned operational production line on all fronts.
Another important consideration falls to the complexities involved in producing semiconductors. The lead times of production of a semiconductor chip are not short. Depending on the complexity of the product, the chemical and physical nature of the production process, along with multiple other factors, the lead time for production averages about 4 months (on the low end).
While it’s true that the industry is pouring a lot of money into production, setting up new facilities, and compiling reliable teams to initiate more resources for semiconductor production supply, this too takes time. The production lead times may average 4 months, but the development end of everything is far longer. Building and ramping up a manufacturing plant for semi-conductors takes anywhere from 1 to 3 years, the chip design (which does need to be implemented to improve chips), adds several years on top of that depending on the needs and complexity of the product. Then there is getting the production into a rolling, steady line, working out the kinks of the process, and anything beyond that is another 6 months at a minimum. That is all before the actual cycle time of production comes into play.
All semiconductor chips are not created the same either, so the complexities involved in the production of each type are also a factor. Some companies will also design their chips but outsource production, putting them at the mercy of those production centers to provide their chips to the consumer market.
Finally, smaller semiconductor firms face an even harder uphill battle. With the raw material stock finite, there is no significant increase in the production on that end, already limiting the supply. They are also at the mercy of big production giants who will buy up all available stock to meet their production needs, leaving the smaller producers scrambling for specialty parts.
Where It Is At Now
It is hard to understate the economic investment and significance of the shifts that need to occur and are in the process of occurring. The problems in the supply chain were not caused by the pandemic alone, but they have expedited the already developing ones. The increased need for electronics would have sent rippling effects through the supply chain regardless, but the pandemic caused it to happen far more quickly than anticipated.
Strategic partnerships, knowledgeable engineering, generally applicable semiconductor chip production, training, and software tools that will advance and expedite the production cycle will be the necessary tools to pull the world through the current supply chain shortage. On the bright side, the pandemic has exposed a glaring weakness in the supply chain, informing the world of the changes necessary to meet the growing demand for semiconductor chip production.
In the meantime, we will continue to endure the lingering problems of the supply chain while we seek to meet higher demands for the products that rely on them for function.
If your team is having supply chain or manufacturing issues, reach out to the Vinatronic staff and we will be happy to help you.