Supply Chain Problems Persist for Microchip Manufacturers & Their Customers

Alexa McPherson, 06 May 2021

microchip manufacturing, supply chain problems

Step aside “black gold” and now there’s a newer, hotter commodity on the block. The microchip.


All about the microchip


A microchip is a small semiconductor module of packaged computer circuitry that serves a specific role in relation to other microchips in a computer hardware system. Many of our most essential personal items contain microchips, like our automobiles and cellular phones. In essence, you can find microchips in all electronic devices. Hence why the importance of this small but complex technology is so high.

And as Martijn Rasser, of the Center for a New American Security put simply: "Semiconductors are the ground zero of the global technology competition. They're in everything that we need to function as a society."


Europe used to be the world leader in microchip technology


At least 2 decades ago, Europe was the world leader in microchip technology. Nokia, Ericsson and Siemens paved the way with the world’s first generation of cellular mobile phones. Eventually, the European consumer electronics manufacturing industry slumped, pushing  microchip production to Asia where the new hotspot is currently. Manufacturers sell 60% of their chips in Asia. From a supply chain perspective, it only makes sense to have production closer to the sales market, when possible.


Most of the world’s microchips are made in Taiwan


Just under 70% of the world's microchips are made in Taiwan and South Korea. The world's leading chipmakers being Intel, Taiwan Semiconductor Manufacturing (TSMC) and Samsung Electronics. Taiwan Semiconductor Manufacturing Company (TSMC) is the third-largest microchip manufacturer in the world. The firm itself accounts for over 50% of the global contract microchip manufacturing market.

Future plans for the Taiwanese TSMC and South Korean Samsung include investment of $100 billion in the next three years to  grow capacity and an increase in capital expenditure by 20% (up to $31 billion) this year, respectively.


Supply chain problems due to the pandemic


The coronavirus pandemic has been the extra momentum in the US drive to bring more of the chip-making industry back onto home turf. As factory shutdowns disrupted supply chains in Asia, it shed light on the risk of having such concentration of the industry located there. It has shown the impact on access to critical technology during times of crisis for the US.

The supply chain shock in terms of microchips has hit hardest in the production of automobiles, computers and appliances. This is partially due to a surge in demand coupled with not enough supply. To further aggravate the situation, severe weather and natural disasters have been striking in all corners of the world.


Microchip shortage slams automotive manufacturing


The shortage of microchips in the automotive manufacturing sector have been so severe that a million fewer cars (which is 5% of total production) were produced in the first quarter of 2021 as compared with the same period a year earlier, as reported by IHS Markit.

There’s kind of like a domino effect when there’s chip shortages, you just don’t know where it’s going to hit next,” pointed out the chief information officer of BetterCloud Inc., which manages and secures software-as-a-service applications.

Among other companies, the global chip shortage is hurting sales at Apple, Samsung, Caterpillar, and Ford- who expects to produce 1.1 million fewer vehiclesAutomakers in Germany, Volkswagon and Daimler, have been forced to reduce output as well.


Europe wants to start making microchips


Back in 2012, 70% of Europe’s semiconductor industry components were actually produced in the EU.  In 2020, this figure was only 54%, according to ZVEI.  The Dutch company, NXP,  is the only European company in the top 10 leading semiconductor manufacturers in the world.  The nationality of the company is under threat as the US rival, Qualcomm, plans to take over the Dutch company.

But the EU has ambitious plans to bring microchip manufacturing back into the block. Supply chain problems could decrease for the EU as they avoid the US China trade war and other instances such as the recent Suez Canal mess.

The EU announced in March that it planned to more than double microchip manufacturing output to 20% of the global market by 2030. This will be an incredibly expensive investment, with preliminary estimates at €140 billion ($166 billion). But perhaps the next manufacturing hotspot could be France, East Germany or Poland.


Microchips in the center of a political conflict


AS the headlines read, the US wants to limit China’s access to the semiconductor technology.

This is because, globally, microchips are increasingly being viewed as an issue of national-security. They play a powerful role not only in consumer technology but also in military and cyberwarfare. Since the Trump administration, the U.S. has been placing new restrictions on China’s industry.

Notable events include the recent blacklisting of Chinese telecom giant, Huawei. And also blocking certain Chinese microchip manufacturers from buying American equipment without a license. The Biden administration has only escalated tensions as the whole world waits to see how this will pan out.


Global coverage no matter how supply chains shift


As with the examples of microchip manufacturing, commodity markets are always changing. It's important for forwarders to remain agile and flexible as ever. Plus also gain and/or maintain connection to trustworthy agents in the countries of which manufacturing hotspots are emerging. As a forwarding agent member of 7ConNetwork, you are guaranteed coverage on all 7 continents. Learn more about the experts’ platform for delivery here.

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