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How is semiconductor chip shortage affecting Asia?

semiconductor chip shortage

The shortage of semiconductors has adversely affected Asian economies in 2021. In addition to issues caused by the Covid-19 pandemic, several major economies are facing this new problem that demands immediate action. Consumers worldwide are finding it ever more challenging to get their hands on new electronic devices. The culprit is the shortage of one component, semiconductor chips, a backbone in nearly all electronic devices.

Where consumers are unhappy about the long waiting list, suppliers are finding it hard to get more of their products onto the market. Moreover, the shortage has affected various sectors and industries across the world. The chip shortage has roiled the automotive industry and technology firms. From auto to consumer electronics, industries across Asia are facing a sudden supply gap. China, Taiwan, Japan, Indonesia, South Korea, India, and Malaysia were especially hard hit by this semiconductor chip shortage in 2021. This is due to the reliance of auto and consumer electronic manufacturers on a consistent supply of semiconductor chips.

Companies, as well as governments, have been taking on this challenge. New policies are being implemented to remedy this global shortage and hopefully prevent it from happening in the future.

Causes of semiconductor chip shortage

There are several reasons why a semiconductor chip shortage has hammered the world in 2021. The disruptions range from severe weather in Texas to fire at a semiconductor company in Japan. Changes in demand/supply patterns have led us to a place, according to Cisco, where the shortage may last six months.

Concurrent with these disruptions, tech and auto manufacturers shocked the industry with a massive boost in demand. Also, global-wide shutdowns led to production bottlenecks and the drying up of semiconductor chip reserves.

However, these disruptions were minor compared to the double whammy that hit all industries across the world due to the Covid-19 pandemic. Countries were forced to implement nationwide lockdowns, that drove changes in consumer electronic demand. Samsung phones, for example, registering record profits during the pandemic. Companies failing to anticipate this surge and the shortage impact had to announce many products “out of stock”.

Moreover, the price of silicon, the primary component of semiconductor chips, has spiked. The reason for this substantial increase: the silicon used for Covid-19 vaccine vials and semiconductor chips are the same.

Worst-hit industries 

Industries affected by the scarcity of semiconductor chips have struggled through a tough 2020, including shut-downs, unmet sales projections, etc. Companies had to take drastic measures from SMEs to conglomerates, like curbing production, raising prices, or other nearly unprecedented steps.

According to Goldman Sachs, the shortage of semiconductor chips has impacted 169 industries across the board, which could last well into 2022. The worst-hit sectors are its leading consumers, namely the car sector, phones and computing industries, and consumer electronics.

Major auto companies are reporting shift cancellations, plummeting profits, and idling in their output. Meanwhile, consumer electronics like Sony and Microsoft are expecting to miss their sales target for their latest flagship consoles.

Probably the deepest wound left by the shortage in semiconductor chips was taken by Samsung. As the world’s second-largest buyer of chips, Samsung might postpone the launch dates of its new smartphones because of the shortage.

Companies hit by pandemic losses are now reporting reduced earnings due to the semiconductor chip shortage. Major manufacturers such as Apple, Samsung, and Caterpillar have warned about the shortage impact, demonstrating its ever-widening reach.

75% of the world’s semiconductor chips are manufactured in East Asia. Together with Japan and other East Asian countries, the economies of China and Taiwan are suffering from the shortage and are seeking ways to reckon with the problem.

How are companies dealing with chip shortage

Urged by their Ministry of Economic Affairs, the world’s largest manufacturer of semiconductor chips, Taiwan Semiconductor Manufacturing Co (TSMC), is set to boost production and add new production sites to make up for the rocketing demand.

The Taiwanese giant has revealed plans to increase its production capacity and reinstate the demand-supply balance by investing up to $100 billion in new production sites throughout the next three years.

Being able to attract foreign investors into their semiconductor development projects, China has been able to establish itself as a worthy rival among semiconductor chip manufacturers. Government support and incentives, as well as US restrictions, have also acted as propellants for this move. China’s “Made in China 2025” comprehensive plan for automation includes detailed guidelines for it to reach semiconductor self-sufficiency by 2025 via maximizing its manufacturing capabilities.

Other Asian industries using semiconductor chips, like Malaysia’s Sime Darby Motors, have reported hiccups in their sales expectations in 2020. However, they are projecting an easing of the shortage in the next few months across Malaysia.

India is reporting a 5-10% drop in the supply of their laptops and PCs because of the shortage. However, by prioritizing domestic manufacturers, they’re hoping that balance will return within the next few quarters. 

In tandem, the US has made its policies even clearer by putting restrictions on the sale of semiconductor chips to China and plans to add more sanctions. US President Joe Biden has also made his concerns very clear by bringing up the issue at a White House meeting with tech leaders urging them to turn the country into the world’s leading computer chip manufacturer.