All You Need To Know About ‘Chipageddon’

New cars often built with more than 100 microprocessors, however, in recent times, manufacturers have been unable to source for all the chips due to “a shortage in supply”.

In 2020, while technology companies warned they faced constraints due to the scarcity of chips and gamers struggled to buy new graphics cards, Apple had to stagger the release of its iPhones, and the latest Xbox and PlayStation consoles which came nowhere close to meeting demand.

Samsung also has been left struggling to fulfil orders for the memory chips it makes for its own products and for others because of what a Tech insider called the “Chipagedon”- the Armageddon of microprocessors.

Even Qualcomm, the company that makes the processors and modems that power many of the leading smartphones and other consumer gadgets have also reported the same problem.

Pandemic’s impact

The lockdowns caused by the coronavirus has fuelled sales of computers and other devices to let people work from home – and they also bought new gadgets to occupy their time off.

The automotive industry saw an increase in demand and decided to cut orders, resulting in chipmakers switching over their production lines.

5G infrastructure

With existing foundries running at capacity, building more chips became harder.

“It takes about 18 to 24 months for a plant to open after they break ground,” analyst Richard Windsor says.

“And even once you’ve built one, you have to tune it and get the yield up, which also takes a bit of time.

“This isn’t something you can simply switch on and switch off.”

The rollout of 5G infrastructure is also adding to demand.

And Huawei put in a big order to build up a stockpile of chips before US trade restrictions blocked it from ordering more.

By contrast, the car industry is relatively low margin and tends not to stockpile supplies, which has now left it in a pinch.

Recently, TSMC and Samsung, the leading chip producers, have spent billions getting a new highly complex 5-nanometre chip-manufacturing process up to speed to power the latest cutting-edge products.

But analysts say more widely, the sector has suffered from under-investment.

“Most of tier-two foundries have been registering poor earnings, low margins and high debt ratio during the past few years,” a recent report from Counterpoint Research says.

“From the profitability perspective, building a new fab[rication plant] for smaller foundries is difficult to consider.”

And many of these chip producers will instead respond to the extra demand by increasing their prices.

Monopoly producers

As the US leads in terms of developing the components’ designs, the same goes for the domination of the chip-manufacturing industry by manufacturers from Taiwan and South Korea.

TM Lombard economist Rory Green estimates the two Asian nations account for 83% of global production of processor chips and 70% of memory chips.

“Like Opec was for oil, Taiwan and South Korea are near monopoly producers of chips,” he wrote, adding their market share was set to grow further,

That has raised concern in the States, where one lobby group called the current crisis the “canary in the coal mine” for future supply-line shortages.

And a group of 15 senators has written to President Biden urging him to take action to “incentivise the domestic production of semiconductors in the future”.

But arguably the country most affected is China, which makes more cars than any other nation.

Research company IHS predicts 250,000 fewer vehicles will be produced in the country during the first three months of the year as a consequence.

Patsy Nwogu

Reporting on data-driven featured stories and investigations.

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