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The crisis in the semiconductor market – symptoms, diagnosis, forecasts

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When the semiconductor shortage will end.

  • A semiconductor shortage – is it possible?
  • The problem with semiconductors – causes
  • The shortage of semiconductors in the automotive industry
  • When will the semiconductor market stabilise?

It has been reported in the media many times, so you must have heard about it already, that the car manufacturers are unable to produce new cars due to the crisis in the semiconductor market. Modern cars are full of electronics but is it really bad enough to halt production? Does the semiconductor crisis only affect the automotive industry and is there no cure or at least a vaccine for it?

A semiconductor shortage – is it possible?

One of the first symptoms of the crisis in the semiconductor market was the lack of GPUs. Allegedly, their production has been halted due to the shortage of GPUs. Everyone explained this situation with the growing interest in cryptocurrencies (processors built into graphics cards improve the work efficiency of cryptocurrency mining software), but it was probably not the only reason. The next to sound the alarm were car manufacturers. At the time, many people were rubbing their eyes in amazement – how come you cannot make a car, due to a lack of semiconductors? This situation was new, although not for everyone.

Older people, who have been involved in the electronics industry for decades, can still remember the days of shortages, when, for example, production of a music kit was halted because the delivery of LEDs was late. Nowadays, before the crisis in the semiconductor market, such a situation was unthinkable, but in the past, it was not uncommon for huge plants to experience downtime because of shortages of all kinds of small components. The exemplary LEDs, on the other hand, were the main elements of the indicators, backlighting, and influenced the aesthetics and functionality of the product. However, such situations are now a thing of the past and we have certainly got over the shortage of raw materials for production. Especially if we are talking about those that are mass-produced in millions of copies. However, the truth is that if certain models of microcontrollers or GPUs were to disappear overnight, the production of TVs, tablets, smartphones, cars, high-end domestic appliances and other consumer devices would be immediately affected, as they are essential components of today’s user interfaces.

In today’s world, with the mass production of components, it is difficult to understand the semiconductor shortage and the situation where supply does not keep up with demand, that is, where no money is being made when there are huge profits to be made.

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The problem with semiconductors – causes

It is probably impossible to identify the single reason for the chip shortage and, for example, blame everything on the pandemic. The modern economy has a global dimension, which means that the situation in one country can have an impact on the situation in another. The same applies to large market players or suppliers of a rare commodity – their legal, political, or technical problems can affect economies around the world.

For example, a rare snowstorm in Texas, which we saw a few months ago, prevented many American companies from producing, not only in the semiconductor industry. A Japanese semiconductor factory was closed for over a month following a fire. Samsung Electronics Co. warned of a “serious imbalance” in the industry, while Taiwan Semiconductor Manufacturing Co. said it was unable to keep up with demand despite running factories at more than 100% of capacity. The US embargo on large Chinese component manufacturers meant that the plants there had to reduce production. We are talking, e.g., about SMIC, a major Chinese player in the semiconductor market, which is prevented by geopolitical factors from seizing market opportunities.

It also seems that producers closing their factories during the quarantine period had somewhat underestimated needs. Production has been halted at many factories and the employees were on forced leave. Reduced demand has led to reduced supply, and it takes time and energy to turn the flywheel again. On the other hand, remote work has increased the demand for tools dedicated to it, such as laptops, cameras, tablets, modems, printers, etc. Automotive component plants have been able to switch to producing components for consumer electronics, for which demand has increased significantly. So, it is not surprising that when car production resumed, the component warehouses were empty.

The semiconductor market crisis and the chip shortage appear to have resulted mainly from inaccurate demand forecasts during the pandemic in 2020. Many companies predicted at the time that people would start to cut down on consumption when times got tough. However, demand has proved to be Covid-proof. People, who were forced to stay at home, started spending their money on technological gadgets. They stocked up on better computers and larger displays to work remotely. They bought new TVs to watch movies or consoles to play video games. Children had to be provided with the necessary equipment for remote learning. People stocked up on coffee machines, advanced kitchen robots and other equipment to make quarantine life taste better. The pandemic turned into an online spending spree, which was supported by the biggest e-commerce players introducing special offers.

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Semiconductor shortage in the automotive industry

Car manufacturers were caught by surprise. They shut down their factories at the start of the pandemic when demand fell as showrooms were also forced to close. The interruption in production has slowed down sales of semiconductor chips, which are essential for today’s vehicles. At the end of last year, demand for cars started to grow. People wanted to move around, but due to the Covid risk, they did not want to use public transport. Car makers began reopening their factories and started to order components from chip manufacturers such as TSMC and Samsung. Unfortunately, it turned out that the factories were not able to meet the needs of vehicle manufacturers fast enough and the shortage of semiconductors in the automotive sector became a reality.

Silicon wafer production lines, necessary for the production of semiconductor components, have become a bottleneck. The pandemic has generated so much demand for consumer electronics devices that semiconductor raw material manufacturing facilities are unable to provide enough material, e.g., for the production of LCD display drivers for computers, televisions and game consoles as well as new products where companies are starting to use screens and touch panels, such as refrigerators, heating and air conditioning appliances, sound equipment, etc.

The difficult market situation concerns not only car manufacturers. It is worth noting that many well-known consumer electronics manufacturers have postponed the launch of new products.

It is difficult to say how long this situation will last. On the one hand, vaccination against Covid-19 is underway and more sectors of the economy are being opened, but on the other hand, the entire world suffers from serious shortages in raw materials, components, and manpower. To save the industry and the economy, countries are forced to use reserves and/or to print money. Extensive economic recovery plans are being implemented. As a result, inflation is rising and the value of money is decreasing.

When will the semiconductor market stabilise?

It remains to be hoped that the business will recover fairly quickly and that electronic component manufacturers will address the semiconductor shortage. Officially, it is said that around July/August there should be no more supply problems. But what about until then?

It seems that distribution companies that have stocks in their warehouses may be a solution for this issue. TME is one of those companies.

TME has grown from a local distribution company to an international corporation that cooperates with numerous manufacturers from all over the world, not only with the largest and most important ones, but also with those who provide so-called niche products, specific for a given industry or application. Products from TME warehouses are delivered to almost anywhere in the world and the support network covers countries on every continent. Importantly, the company’s policy provides for quick delivery, which is possible thanks to high inventory levels. In the current state of the semiconductor market, the advantage of stocking niche products becomes all the more valuable.

Text prepared by Transfer Multisort Elektronik Sp. z o.o.

The original source of text: tme.eu

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