Exactly a year into the pandemic, and its safe to say that new challenges are coming our way. Countries are nowhere close to mass inoculation levels, even as a second wave seems to be gaining traction. But 2020 was also the year telemedicine and online medical consultations exponentially grew. Moreover, nationwide lockdowns that lasted throughout 2020 in phases have affected supply chains massively, and industries are still trying to get productivity back up to pre-pandemic levels. While economies worldover slowly recover from a slump, its safe to assume that life as we knew it is a memory of the past. Organisations are already preparing for hybrid work models and are increasingly embracing a Work From Anywhere model. International air travel might be slowly picking up but the pandemic has compelled more of us to use our own vehicles and make scaled-down local getaways for a quick break. The past year also witnessed the biggest surge in hybrid cloud adoption, and this trend will continue, according to industry observers. E-commerce too witnessed a windfall last year as lockdowns and reduced mobility compelled even the most tech-averse to shop online. 

All these have one common factor - semiconductors. Right from medical equipment, laptops, gaming consoles and mobile phones to smart TVs, refrigerators, microwave sets and automobiles... pretty much everything around us are powered by semiconductor chips. And the world is facing a serious shortage in semiconductor chipset availability, with what many are calling a "perfect storm of demand and supply" that can massively disrupt global supply chains.

From Phones To Cars.. Gadgets Will Become Expensive 

At this point, pretty much any entity in consumer electronics and automobile production are in a rough spot. Samsung is not only among the world's largest consumer of semiconductors, but is also a major exporter - and even the South Korean company is expected to postpone the launch of its high end smartphone due to the ongoing shortage. Apple, the world's biggest buyer of semiconductors, spending nearly $58bn annually, delayed the launch of the iPhone 12 last year. Production of smartphones by Lava and Micromax have come to a near halt as their chipset supplier MediaTek has run out of stock. Sony too stated that it may not hit sales targets this year for the new PlayStation5, while Microsoft expects sales of Xbox to be affected atleast until the second half of 2021. 

But it appears car makers are the worst hit. Globally, automakers cumulatively spend $37bn worth of chips. But with consumer electronics and appliances taking a bigger share of the semiconductor purchasing pie, automakers are finding themselves scaling back production as chips become dearer and largely unavailable now. Ford Motors stated the company will be cutting production in the US while Stellantis, the world's fourth largest automaker will build and hold its final assembly for the popular Ram 1500 Classic Trucks across its US and Mexico production plants, for several weeks atleast. Nissan is also idling output at its Mexico plants while General Motors is anticipating a shortfall of US$2bn in profits. Other carmakers that have slowed down production include Toyota, Volkswagen and Fiat Chrysler. 

As the months roll by, expect appliances and cars to become expensive, and a longer wait-in period as production stalls across the world, in anticipation of semiconductor chips. 

Why Is This Happening? 

When one person or entity holds on to a precious commodity or product that's in short supply, it is bound to create demand-supply challenges. That's the simpler, shorter answer. Taiwan is the undisputed leader in semiconductors, with the Taiwan Semiconductor Manufacturing Company (TSMC) accounting for nearly 70% of global market share. The USA too is a major player in chip manufacturing, however only 12% of locally made chips are used by American companies. The limited reliance on external providers is also because USA isn't developing the latest, most advanced chips yet. The measure of how advanced a semiconductor fabrication is depends on the number of transistors per sq mm. Currently, the most advanced in the market is the 5 nanometre (nm) or millionths of a millimeter. South Korea and Taiwan are already developing 3 nm fabs, but USA is yet to produce 7 nm fabs - the version older than the 5nm fabs. Industry observers say Taiwan is now the choke point of the global semiconductor value chain as this excessive reliance is proving to be costly for all. TSMC is the only entity in the world that has the technologies advanced enough to make the most cutting edge chips that every company wants to get its hands on. Investor and market analysts Stephen McBride has even gone on to say that chips have surpassed oil as the most valuable resource. But TSMC now appears to want to consolidate its monopoly on the chip maker. The company plans to invest upto $28bn in fabs alone, and specifically $12bn for a fab in Arizona, USA that can produce about 20,000 units per month (in comparison to the 1,000,000 wafers that Taiwan and China can already produce.) 

While Taiwan has been emerging stronger every year as a chipmaker, the COVID19 pandemic and rapid adoption of digital technologies has further exacerbated the chip crisis. And with more organisations gravitating towards grooming a hybrid workforce marked with digitally connected devices, the strain will continue indefinitely until the supply of chips matches or outpaces the demand. 

How Does This Impact Industries In AI? 

The supply constraint of chips adversely affects the development of emerging technologies like AI, quantum computing, cloud and edge computing, 5G and advanced wireless networks. If AI is the technology of the future, then chips are responsible for delivering this technology to us. 

What Are Governments Doing? 

One of the most definitive acts was an Executive Order passed by US President Joseph Biden. An immediate 100-day review of supply chains for four critical products: semiconductor chips, large-capacity batteries for electric vehicles, rare earth minerals and pharmaceuticals.

PM Modi, as part of his clarion call of aatmanirbharta, had emphasised on the need for India to strengthen her semiconductor manufacturing capabilities. While industry watchers are cautiously optimistic on India's plans to foray into setting up foundries or fabless units, there is a lot more confidence on the country's inherent strength in semiconductor design. But if Taiwan continues to strong-arm the rest of the world on chip demand, it may just be time for all countries to start thinking of how to offset this monopoly conducively.