The Global Crisis of Semiconductor Chips

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admin November 5, 2021
Updated 2021/11/05 at 7:03 AM

The worldwide scarcity of semiconductor chips is beginning to have an impact on India’s small and medium-sized companies (SMEs). Smaller businesses are being hit when Original Equipment Manufacturers (OEM) scale down manufacturing, resulting in a drying up of business orders and hence profits.

Semiconductor Shortages: What Causes Them?

Increased Covid-19 cases in supplier nations, particularly in Asia, resulted in production interruption (factory closures), resulting in the present scarcity. A severe winter storm in Texas forced the closure of semiconductor plants, while a fire at a factory in Japan prompted similar delays. Substrate manufacturing’s low margins have also led to underinvestment, exacerbating the misery of a global chip scarcity. Chips are connected to the circuit boards that house them in computers and other devices by substrates. Substrates, which are made up of thin copper wire sandwiched between two layers of resin, assist in transmitting user instructions to a computer’s processors and relaying the results. Because the ultrathin wire that comes out of chips can’t withstand a direct soldered connection to a circuit board, they’re required. As a result, the global chip supply chain considers Substrate Manufacturing to be a backwater. Substrate supplies are extremely limited, and even minor disruptions in this underinvested industry are generating major concerns among chipmakers. Both Intel and IBM’s CEOs have lately stated that the chip scarcity may continue two years.

Impact of a chip shortage on the automotive industry

The car industry has been compelled to reduce output due to increased lead times – the time between when an order is made and when the shipment is delivered. The slowdown of output by large automotive companies has resulted in fewer new orders being made with MSME vendors (who provide parts). MSMEs who are auto industry vendors and sub-vendors are now working just 8 hours instead of the usual 12 hours. This has not only impacted their earnings, but it has also prompted them to seek employment in other fields. While the local MSME manufacturing sector was gradually returning to normal following the second wave of Covid-19, recovery was hindered by high raw material prices and low orders.

Automobiles’ powertrain, chassis, safety systems, sophisticated driver assistance systems, and other components all use semiconductor chips. In comparison to commercial vehicles or two-wheelers, they are more commonly utilised in passenger vehicles. Chip demand has grown as more people switch to electric cars. A Ford Focus, for example, has about 300 chips, but one of Ford’s upcoming electric vehicles has up to 3,000 chips. The decreasing supply of semiconductor chips has a negative influence on the car industry’s output.

What role can India play?

Chip manufacturing is capital-intensive (an average-sized plant costs $7-10 billion) and requires a long gestation period and fast technology, making it difficult for India to achieve chip fabrication self-sufficiency. Government-owned semi-conductor facilities, such as those run by ISRO and DRDO, can, nevertheless, be extended and improved. Governments may entice international businesses by showing a competent R&D talent pool, low labour costs, a big market, and regulatory assistance (Production-linked incentive scheme)

Companies such as Samsung and Tata Group are investing heavily in the manufacture of semi-conductors. On-shoring production has received billions of dollars in subsidies from the United States, Europe, and China. Automakers are signing long-term supplier contracts

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