• Monday, Dec 06, 2021
  • Last Update : 06:23 pm

ANALYSIS: Crossroads in the chip market

  • Published at 05:46 pm October 18th, 2021
Global chip shortage
Courtesy

A test of patience and adaptability

The ongoing pandemic has affected numerous large scale industries all across the world.

The trickle-down impacts are showing right now, as countries worldwide strive to maintain the regular momentum of their economies through contingency plans.

One industry that has faced such dire backlashes due to Covid-19 is the tech industry – more precisely – the operations of telecommunication, automobile, healthcare, computing, and a handful of other industries under the umbrella of technology that obtains chips or semiconductors.

Prior to the catastrophe, we were witnessing a steady growth in the usage of semiconductors due to their rapidly increasing utility and cost-efficiency.

According to Statista, although it took a blow in 2019 (-12%), the global revenue of the semiconductor industry saw a fine regain in the trend, marking the growth near 20% within the next couple of years.

But the temporary halt in progress caused an unfortunate imbalance between the supply and demand of chips in the market, which eventually led to various manufacturers witnessing a stock crunch of their popular products.

For example, renowned automobile brands like Volkswagen AG, Subaru, General Motors, Ford, Toyota, and Nissan have all reported to scale down their regular productions due to the shortage of auto semiconductor chips. Besides the pandemic restrictions, a few other reasons, i.e., closure of large semiconductor factories, scarcity of chips transportation facility, decreasing number of professional container drivers, etc., have caused the issue to stir up even more chaotically.

The production of smartphones, arguably our most essential companions of our day-to-day lives, also requires semiconductors as one of the key components.

Hence, as the global crisis resulted in the shortage of chips, the overall smartphone industry was bound to face the outcomes of it.

Production was delayed at large, shipments took longer than usual, and as a result – companies were forced to either slacken their market supplies or hike the prices of each unit, considering the imminent market scenarios.

Smartphone brands across the board as well as tech giants from other industries were all made to seek alternative plans in order to keep up with the market adversities.

Such organizations usually opt to ensure a sufficient supply of parts and components needed for at least six months’ equivalent of production in advance, but with the scarcity of semiconductors, it seems the stocks are drying out at an alarming rate.

But all hopes are not gone. Smartphone manufacturers are brainstorming to overcome the impediment while keeping the maximum possible balance between their supply and demand.

For example, the use of fabless semiconductors manufactured by brands like UNISOC has gained popularity now.

Through fabless manufacturing, crafting the chips is still possible while outsourcing the semiconductor device fabrication from foundries located mostly in China.

Fabless manufacturers have the option to provide integrated-circuit design services to third parties.

Hence, a synergy between smartphone manufacturers and popular fabless chip manufacturers is now evident, which is showing a ray of hope amid the pandemic crises.

Minimizing the supply gap, perhaps, is now the primary objective for most of the leading smartphone makers.

As the world eagerly anticipates the incredible lifestyles under the span of 5G technology, brands are putting their best efforts to stay in the game.

Chinese subsidies

China has come up with a number of subsidies to the chip industry so that it can lessen the dependency on western technologies.

The European Commission has also expressed willingness to push for chip manufacturing capacity in Europe to ensure self-dependency. 

Intel, the globally leading tech manufacturer, also declared that it would spend $20 billion to establish chip plants in Arizona, US.

It is understandable that the total context might not be very suitable for the common smartphone users to comprehend, but one thing is for certain – sooner or later, the industry shall make a U-turn.

We have only arrived at a crossroads where we need to pass through patience and adaptability.

The currently rising prices of smartphones, automobiles and other smart devices are indeed spreading apprehension, but this surely is not the bottom line.

 

The author is managing director of realme Bangladesh

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