Raspberry Pi is known for its near PC-like experience costing only between $35-$70 based on the model. Last year, our senior project team purchased a Raspberry Pi 4 kit for less than $100. But now, the same kit for the same model costs $200 on amazon. This is the effect of the global chip shortage. You must have noticed over the past two years, since the beginning of the pandemic, the price of electronics have gone high or they are simply not available in the store.

The electronics industry has seen an explosive demand since the pandemic. Ever since lockdowns, people have been forced to work and study from home. So, everyone was setting up home offices for which they required additional equipment.

The film industry was hard hit during this period. Movie productions were delayed and theatres were closed. Hence, people turned to gaming which caused an increased demand for gaming consoles (Source). Companies like Sony and Nintendo could not satisfy demands because the supply chain couldn’t keep up with the pace. Moreover, lockdowns forced a reduced capacity of workers in manufacturing industries.

The past two years has also seen an escalation of cryptocurrencies. The cryptocurrency market briefly crossed the $3 million cap in late 2021 (CNBC). Finding the business profitable, crypto miners are building “mining farms” with thousands of GPUs. There is an increase in demand for GPUs from gamers and crypto-miners.

So demands raised, but supply slowed – not difficult to understand. However, the global chip shortage is one of the many examples of a setback that was bound to happen anyway but was fast tracked by the pandemic.

When we talk about semiconductor chip designs, the big names that come into discussion are Intel, Nvidia, AMD, Qualcomm, and recently Apple. Among these companies, Intel is the only one that didn’t outsource manufacturing until mid 2020.

So who manufactures all the chips? Holding 54% of the global market share, Taiwan Semiconductor Manufacturing Company (TSMC) is the largest player in semiconductor manufacturing.

Semiconductor Manufacturers by Market Share
Top 11 Customers of TSMC

The above chart shows TSMC earns over 50% of their revenue from the biggest names in the semiconductor chip industry. A quarter of TSMC’s revenue comes from Apple. The above two charts show the domination of one company in the entire industry. As TSMC felt the effects of the pandemic, the entire industry was shaken.

Last year, Taiwan faced its worst drought in 56 years (BBC), which further contributed to the crisis because chip manufacturers require immense amount of water for cleaning the sensitive wafers. On an average day, TSMC consumes more than 10% of of the water supply from two local reservoirs.

The drought shows that the pandemic is not responsible for the chip shortage; it is merely a catalyst. If only one country (Taiwan) is responsible for manufacturing 63% of the chips out there, then the industry is always at risk.

Like politics have not caused enough problems, the US imposed restrictions on SMIC – China’s biggest semiconductor manufacturer – due to the China-US Trade War. None of the American companies are able to outsource their manufacturing to China. So their demands are stretching TSMC and other companies’ production.

Looking Forward

So when is the crisis going to end? Nvidia CFO Colette Kress said, “We expect demand to continue the supply for much of this year”. Gartner’s VP for Semiconductors and Electronics hinted on a similar trend, “Power management solution and analog devices will be the last to recover and in some cases shortages might extend to early 2023”.

Last year, Intel announced that they would invest $20 billion for building chip making factories in different cities of the US. They are expected to start production by 2025 (Intel). TSMC also announced a $100 billion plan for expanding their manufacturing beginning with $44 billion in 2022 (The Verge).

While these initiatives will help catch up with the demand, the ultimate solution is to diversify the market holders.

1 comment

Leave a Reply to PhillipWomit Cancel reply

Your email address will not be published.