Countries like South Korea, Taiwan, China, the US, and the European Union that are struggling with the shortage of semiconductor chips, are planning to produce their own in the coming years, according to reports.
Semiconductor chips are predominantly used in a wide range of products, from smartphones, gaming consoles, white and brown goods to alarm clocks and even cars.
Reports suggest these chip shortages may last until 2023, which is bad news for the economy. Currently, the demand-supply gap is high and companies are adjusting their production and manufacturing accordingly. Car manufacturers are feeling the pinch as they have stalled production due to a global shortage of chips.
In an interview with CNBC’s Squawk Box Asia, Timothy Uy, Associate Director, Moody’s Analytics, said it is now a matter of national security.
“On both the supply and demand sides, I think companies are adjusting. Governments are also getting in on the action because they view this as, in some sense, kind of a matter of national security,” the analyst told CNBC.
Intel Corporation's chief executive officer Pat Gelsinger had suggested that the shortage of chip supply may last till 2023.
The start of the 2020 pandemic led to a shortage of semiconductor chips. A recent analysis by Goldman Sachs suggested that the global chip supply shortage would impact at least 169 industries.
Even if a country or a company intends to set up a semiconductor chip manufacturing plant, it cannot be established instantly. It may take years for the new supply to come online as plants have to be built and fitted with the proper technology, said Timothy Uy. It is a capital-intensive process that involves weeks of production and only a few companies manage this, he said.
Major manufacturers prefer to invest in new-gen line of production rather than invest or set aside resources for the older generation chips that are used by say carmakers.
While car manufacturers use thousands of older-generation chips for every car, smartphones and gadgets require a handful of new-gen chips only. New companies find it difficult to enter the space and that’s why a handful of manufacturers rule this highly lucrative industry.
Despite these challenges, major manufacturers such as Taiwan Semiconductor Manufacturing Company, Samsung Electronics, and UMC have announced investments in their chips plants.
The South Korea government has also announced a $450 billion program until 2030, tax benefits for chip makers, and is wooing corporate investments in this segment. China too has planned to catch up with other countries and has set up a multibillion-dollar national fund. The US government, on the other hand, has passed a tech and manufacturing bill that includes $52 billion to fund semiconductor research. The EU too has committed a significant fund towards this.
(Edited by : Kanishka Sarkar)