We are still hurtling toward Chippagedon

The world is witnessing an unprecedented chip crisis which shows no sign of ending. It may be a tough few years with chip demand going up and supply not being able to keep up.

What is Chippagedon?

The term was coined as a combination of two words: Chip and Armageddon. It refers to the global shortage of chips that took place as an aftermath of the Covid crisis. The first to see production problems was the car industry and there were reports of gaming consoles being affected. Also spelt as Chipageddon.

Why is it happening?

The Covid crisis and lockdowns led to a series of supply chain disruptions all over the world and the shortage of many kinds of materials and products. Additionally, since everyone was working from home, it led to a sudden spurt in the demand of multiple kind of devices. Today almost all these devices are powered by some chip or the other. Smart Homes will become even more popular and they will be powered by home devices like Alexa, so the home has become one chip guzzling unit. The semiconductor factories cannot cater to this Covid spike.

Other tragedies have further muddied the waters. This year we have had fires in the plants of Samsung (Korea), SK Hynix (China) and Renesas (Japan). SMIC (Semiconductor Manufacturing International Corporation) is China's largest chip maker. The US government placed restrictions on them in 2020.

The Taiwan drought may set things back as chip units are water guzzlers. America’s Texas boasts of a lot of fab units and power outages thanks to the cold wave at the beginning of this year led to them being unable to operate.

Why can’t we simply increase production?

It’s not that easy. Semiconductor plants are state of the art. As chips are getting even more sophisticated and smaller it’s getting more difficult to make them. The plants are expensive and take years to build. A chip may take upto 3 months to make from the beginning to end to manufacture and has to maintain very high quality standards. America’s Intel, South Korea’s Samsung and Taiwan’s TSMC are the Big 3. They account for half the revenue with about a dozen players accounting for the rest.

These plants are already running 365 days a year 24X7. What more can you do? The cleanrooms that are used to manufacture chips are the best in the world surpassing even hospital standards. Even a single speck of dust can make a chip useless. Human touch and exposure to uncontrolled air can be equally disastrous.

What is the wait time?

Globally there are reports of chips taking more than 20 weeks from order to delivery, the first time it has happened in years. Usually it's about 12-15 weeks. For microcontrollers and logic chips it's more than 25 weeks. These wait times may get longer by 2022.

How serious can it get in the future?

Cristiano Amon told a website while taking over as Qualcomm CEO: “What keeps me up at night? It’s this supply chain crisis we're having in the semiconductor industry. It is causing a lot of stress as the supply chain was not prepared to deal with the growth.”

A few months back Bloomberg said that the chip crisis has entered a danger zone and carmakers may lose more than $100b in sales. In India too it affected the Maruti Dzire while automobile related SMEs in Pimpri-Chinchwad have complained of the same.

Other reports said that chip smuggling has begun in China. In one case a driver at a checkpost was found to have more than $100k chips stuck to his body via cling film. Some are refurbishing old chips while others are making fake ones. Forrester said the crisis could last till 2023.

What is the world doing? 

Semiconductor powerhouse Taiwan will be building many more fabs. US President Joe Biden announced a chip action plan when he took over the White House. The Government of India has been pushing its Atma Nirbhar campaign for everything including chips. The Tatas are planning to get into the semiconductor business. However this will solve the long-term problem and not the short-term one.