Why is there a semiconductor shortage? Global chip stocks plunge under soaring demand

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Since the Covid pandemic began nearly two years ago the world has been facing up to the issue of a lack of semiconductor supplies. These pieces of technology also known as computer chips help to power a wide range of modern products, including cars, washing machines and smartphones. So, why have these chips become so rare to find?

What is the problem?

During recent months it has become almost impossible to buy a PS5 games console.

Toyota, Ford and Volvo have had to either slow or temporarily halt production at their factories.

Indeed, smartphone makers are feeling the pinch too, with Apple warning that the shortage could affect iPhone sales.

The common issue? A lack of semiconductors – a type of computer chip used extensively in electronic circuits.

Why is there a semiconductor shortage?

Semiconductors perform a number of functions in modern products, and there are often more than one in a single device.

1.) Soaring demand in the pandemic

As Covid began to spread around the world, early signs of fluctuating demand led to stockpiling and advance ordering of chips by some tech firms, which left others struggling to acquire the components.

Laptops, tablets and webcams have all been required by people who are now working from home to allow them to do their jobs.

The fact that chip factories also closed during the various lockdowns further exacerbated the issue.

Consequently, suppliers have struggled to meet consumer demand at times, although manufacturers have been able to catch up once again in recent months.

2.) Manufacturing complexities

With regards to chip production there are two main approaches currently. These are:

  • Using 200mm wafers
  • Using 300mm wafers

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This refers to the diameter of the circular silicon wafer that gets split into lots of tiny chips.

Larger wafers are more expensive and tend to be used for more advanced devices.

However, there’s been a boom in demand for lower cost chips, which are embedded in an ever-growing diversity of consumer products, meaning the older, 200mm technology is more sought after than ever.

In fact, back in February 2020, industry news site Semiconductor Engineering highlighted the risk of a chip shortage, partly due to a lack of 200mm manufacturing equipment.

3.) Bad luck

In the second half of 2021, misfortune compounded the problem. An atrocious winter storm in Texas shutdown semiconductor factories, and a fire at a plant in Japan caused similar delays.

4.) Higher shipping costs

As a result of the sudden shifts in demand during the pandemic the cost of moving shipping containers globally has grown significantly.

Rises in air freight fees and the heavy goods vehicle (HGV) driver shortage in Europe have also made their impacts felt throughout supply chains.

For example, the cost of sending a single 40ft container from Asia to Europe is now estimated to cost 10 times greater than it did slightly more than a year ago.

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