There’s a global shortage in semiconductors, and it’s becoming increasingly serious. The U.S. is currently reviewing its supply of the technology, following a landmark executive order from President Joe Biden.
The president also pledged $37 billion to cover the short-term costs of rebuilding and securing America’s supply of semiconductors, which are a fundamental part of microchips and thus integral to everything from computers to smartphones to renewable energy and military hardware.
The automotive sector has been worst affected by the drought, in an era where microchips now form the backbone of most cars. Ford is predicting a 20% slump in production, and Tesla shut down its Model 3 assembly line for two weeks. In the U.K., Honda was forced to temporarily shut its plant as well.
The concentration problem
While it is easy to blame the COVID-19 pandemic for this situation, the truth is that the global semiconductor supply chain had this coming for some time. As much as 70% of the world’s semiconductors are manufactured by just two companies, Taiwan Semiconductor (TSMC) and Samsung.
The entry barriers into semiconductor manufacturing are astronomically high. There’s a steep learning curve required to set up a semiconductor foundry, entailing an upfront investment of $10 billion to $12 billion and then at least three years to become production-ready.
Even then, there are no guarantees that a new foundry’s chip yields will match those of the incumbents. Chips rapidly become obsolete, and price pressures are a major problem in the tech sector, so there are lots of risks to profitability.
