Global Semiconductor Shortage: How it is Hurting the Automobile and Consumer Electronics Industry
By: Sashwata Saha
Over the last decade, cars have adapted computational capabilities like tablet-displays, AI-assisted parking and power steering - all of which require semiconductor chips. The onslaught of the pandemic resulted in a drop in demand, forcing chip makers to shift their focus to personal electronics. However, operating with a dwindling workforce since the last few months, these manufacturers are not able to keep up with the automobile demands now that lockdowns around the world are being lifted.
The first hints of trouble emerged in spring, last year. The world was in the early stages of a global lockdown, which not only obliterated demand but also super-charged internet and mobile computing when markets did reopen in late 2020.
This about-turn -- over a period of ten months -- laid the foundation for what is being considered to be potentially the most serious shortage in years: that of semiconductors that lie at the heart of everything from gaming consoles to smartphones to cars and TVs.
Silicon chips are the cornerstone of the consumer electronics industry, and demand for these sophisticated chips have soared during the pandemic, as locked-in consumers spent hours on laptops, video game consoles like the Wii, PlayStation and Xbox, smartphones and TVs. When the COVID-19 pandemic was at its peak, carmakers slashed orders for the chip due to lower than expected sales. At the same time, chipmakers started diverting attention to meet the growing demand for chips used in the consumer technology space.
Automakers began warning of a semiconductor shortage sometime in November 2020, after the demand for vehicles picked up in many parts of the world following a shutdown of production plants due to the pandemic. However, the production has not been able to shift back to the requirements of the auto segment as quickly.
A report by marketing consultants Deloitte states that electronics make up 40% of a new car’s total cost. Over the last decade, automakers have become increasingly dependent on semiconductors as more cars adapted to power steerings, dashboard user interfaces, AI parking assistance and internet/cellular connectivity. This means that in order to make a car the manufacturers simply cannot make do without semiconductors. A delay in getting these chips will halt production lines and automakers cannot keep up with the boom in demand that has come up as 2021.
This week, Qualcomm Inc.’s Cristiano Amon, head of the world’s largest mobile chipmaker, flagged shortages “across the board,” citing the industry’s reliance on just a handful of players in Asia. Amon, according to a Bloomberg report, has joined a growing chorus of industry leaders warning in recent weeks they can’t get enough chips to make their products. Carmakers appear in direst straits and have spurred the US and German governments to come to their aid.
Talking to Newshound India Foundation over the phone, Kritika Jindal, a senior engineer at Qualcomm India in Chennai said, “This shortage is what we call the bullwhip effect: small changes in demand, whose variability increases as they go up the value chain.” She explained that the shortage started early last year when the pandemic shut down vehicle assembly plants around India. As the facilities closed, companies like Qualcomm diverted the parts to other sectors such as consumer electronics and computers, which were not expected to be as hurt by the lockdown.
“Now compound the time when we made these decisions with the prior 26 weeks needed to manufacture semiconductor chips and the drop-off or the ‘trough’ in the supply started to hit automotive the latter half of last year, going into the first quarter, 2021,” Jindal elaborated before adding, “With this dearth of semi-conductors, we are shifting our priorities to computers. Imagine, if there is a slowdown in computer production, entire industries will stop functioning within days!”
Jindal, like most of her industry peers, also blames automakers and their lack of farsightedness and poor planning for the current situation. She also added that should this critical shortage of semiconductors continue, it could potentially derail the chances of them recovering as fast as many had initially hoped for. She suggested careful e-waste management and the reuse of older chips for at least the next six months as a way to get out of the supply shortage.
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