The semiconductor shortage is happening globally. It’s not only affecting the automobile sector but also companies that are engaged in manufacturing and selling any electronic products, say smartphones, laptops, consumer durables etc. It has already been dubbed a ‘full-blown crisis’ by the Federation of Automobile Dealers Association of India (FADA). Let’s understand what’s really happening.
Why Is There a Semiconductor Shortage?
India imports semiconductor chips which are very hard to produce. Taiwan Semiconductor Manufacturing Company (TSMC) is the largest semiconductor company in the world. TSMC did not expand their capacity over the years, and then COVID-19 happened. People across the world were forced to work from home, which directly increased the demand for electronic products. But TSMC did not have the capacity to deal with massive supply, creating a global shortage.
Another problem area lies in the number of COVID-19 cases in Taiwan. Yes, it has increased recently despite reporting zero cases for eight months straight. To top that, most of the population have received just the first dose of vaccination. As a result, the cases are rising, and the workers are restricted to be at home.
Impact on Electronic Goods
Since semiconductor chips are majorly used in electronic devices, the sector is facing a crisis at the moment. Festive season has begun and chip shortage will only lead to lower supply and increased product prices. Apart from chip scarcity, the delivery of finished electronic items has been delayed due to extended congestion in Chinese ports and a lack of containers. If the situation goes out of hand, the prices of certain products could cost more, burning layman’s pockets.
Worst Case Scenario
Since millions of electronic products rely on these computer chips, the worst-case scenario seems imminent. Apple and Samsung have already flagged production and so have Indian automakers - Maruti Suzuki, M&M and many others. The demand-supply mismatch will cause huge revenue loss to the companies. The product supply could get completely stopped by electronic goods companies. Analysts project that semiconductor shortages across the automotive sector will extend into the second quarter of 2022 and possibly into the third.
Despite chip makers’ efforts to ramp up capacity to meet soaring demand, the current shortage lingers because expanding chip production takes at least 6-12 months. Meanwhile, Chinese authorities have said that they are ramping up efforts to ensure a steady supply of chips to the industries that need it the most. They have set up a team to ensure steady supply of chips to the sectors that need it the most. However, the problem is not far from over yet.
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