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.
- 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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