One of the more recent and persistent problems that have affected the electronics industry and many other sectors in the global economy have been the shortages of electronic part and components including semiconductor chips in the last couple of years. It has affected many industries by reducing the supply of these components that are used in many products such as automobiles, electronics, and many others. The following are some of the major reasons why there is a lack of supply in these important parts:
Firstly, the outbreak of Covid-19 led to a lot of disruptions in the supply chain and manufacturing facilities across the globe. Manufacturing centers for electronic parts were closed for months, especially in Asia that occupies a vast share in chip production. This resulted into massive order backlog and longer time for moving components to the market. More recently, even as factories recovered and resumed operations, more waves of Covid impacted production again. This also hindered the transportation of components between different locations since there were restrictions on movement in most areas.
Second, the world became obsessed with buying electronic gadgets and cars because life transitioned indoors and online due to the pandemic. For instance, laptops and computer accessories became popular, especially when employees and students were forced to switch to online classes. Automobiles, for instance, showed a better recovery rate than expected as car sales recovered sharply. This increase in demand was witnessed at a time when supplies were constrained due to factory closures and the supply chain problems, making the chip shortage worse. A common tendency among chip buyers was panic buying and creating additional buffer stock, which only exacerbated the problem of limited availability.
Thirdly, a drought in Taiwan disrupted production as most of the Taiwan’s advanced chip manufacturing takes place there. Water is essential for many of the steps in chip fabrication, particularly in rinsing and purifying processes, thus poor water quality or scarcity hinders the number of chips produced. Coupled with cold wave and blackouts, actual output in Taiwanese chip plants was down over 10% in 2021. Taiwan accounts for more than 60% of the global contract chip production, thus any disruptions supplies here are not just amplified but hugely significant.
Others are supply chain constraints, and new technology devices such as smartphones and electrical vehicles that use a lot of components have steered up the demand for the components. For example, the rapidly evolving electric vehicle market today accounts for a significant share of chip production, as the car becomes a digital computer that requires powerful electronics. The availability of 5G technology also served as an important driver globally to increase demand. Semiconductor manufacturers have not been able to devote sufficient capacity to various industries due to bulging demand.
Saying that chips are now essential to almost every sector, experts point at the possibility of the short supply to continue at least through 2023. Significant efforts are still being made to increase the number of new and higher end fabricated chip lines, as well as the overall production capabilities. But, it is only through years that capital intensive facilities such as these are developed. However, there is still a lack of co-ordination across global extended supply chains which is still problematic when it comes to filling the gaps. It means that electronic component shortages can affect industries and consumers occasionally unless for the next 3-4 years, manufacturers build up considerable capacity additions.
In conclusion, the pandemic situation, climate catastrophes, the rapid growth of demand across sectors, and supply chain issues resulted in supply and demand imbalance in the electronic components market. It will take years of adding to the manufacturing capabilities to bring parity in this aspect with the United States. Some suggestions could be inventory management improvements as well as the ongoing search for alternative components as possible short-term solutions. However, addressing the structural vulnerabilities that have given rise to such shortages are still critical in avoiding similar situations that affect the supply of electronics.
