Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.

Global shortage of Semiconductor Chips


From UPSC perspective, the following things are important :

Prelims level: Semiconductor, Rare earth elements

Mains level: Electronic industry

Worldwide carmakers have slashed production due to an abrupt and cascading shortage of semiconductors.

Semiconductor Chips

  • Semiconductors — also known as integrated circuits (ICs), or microchips — are most often made of silicon or germanium, or a compound like gallium arsenide.
  • It’s the thing that makes electronic items smart and faster.
  • Made from a material, usually silicon, that “semi-conducts” electricity, the chip performs a variety of functions.
  • Memory chips, which store data, are relatively simple and are traded like commodities.
  • Logic chips, which run programs and act as the brains of a device, are more complex and expensive.

Reasons for shortages

  • Stay-at-home shift: This pushed chip demand beyond levels projected before the pandemic. Lockdowns spurred growth in sales of smartphones, laptops etc to the highest in a decade
  • Fluctuating forecasts: Automakers that cut back drastically early in the pandemic underestimated how quickly car sales would rebound.
  • Stockpiling: Chinese smartphone industry dominates the global market for 5G networking gear — began building up inventory to ensure it could survive US sanctions.

How is the chip crisis playing out in geopolitics?

  • The global chip crisis and geopolitical tensions with China have shifted focus back on semiconductors.
  • The US, which was once a leader in chip manufacturing, wants the crown back.
  • The protectionist US is looking to bring manufacturing back to America and reduce its dependency on a handful of chipmakers mostly concentrated in Taiwan and South Korea.
  • China’s renewed aggression on Taiwan is also being seen in light of the chip crisis.

Impact of semiconductor shortages

  • Chip shortages are expected to wipe out $210 billion of sales for carmakers this year, with the production of 7.7 million vehicles lost.
  • Broadband providers were facing delays of more than a year when ordering internet routers.

Why is it so hard to compete?

  • Manufacturing advanced logic chips requires extraordinary precision, along with huge long-term bets in a field subject to rapid change.
  • Plants cost billions of dollars to build and equip, and they have to run flat-out 24/7 to recoup the investment.
  • A factory also consumes up enormous amounts of water and electricity and is vulnerable to even the tiniest disruptions, whether from dust particles or distant earthquakes.


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