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Semiconductor Chips Shortage

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September 08, 2021

What is the issue?

From delayed car deliveries to a supply shortfall in home appliances to costlier smartphones, businesses and consumers are facing the brunt of an unprecedented shortage in semiconductor chips

Why did the chip shortage occur?

  • Covid-19 pandemic and the subsequent lockdowns across the world forced shut crucial chip-making facilities
  • Higher Demand for chips from laptop and electronic device-makers due to increased telecommuting and home
  • Monopoly producers i.e South Korea dominate the chip-manufacturing industry
  • Sanctions against Chinese tech companies
  • US-China trade war
  • Rollout of 5G infrastructure
  • Panic buying to shore up stocks has driven up the costs of even the cheapest components of microchips
  • A winter storm in Texas and a factory blaze at a Japanese fabrication unit

As much as 63 % of global chip fabrication is today outsourced to Taiwan with just three firms from Taiwan, South Korea and China controlling over three-fourths of all fab supplies

What is its impact?

  • Triggering a structural change in the procurement policies of global manufacturers
  • Long-term supply contracts are being signed by automakers
  • Firms like Samsung, Tata Group are sinking huge investments into semi-conductor production
  • The US, Europe and China have committed billions in subsidy to on-shoring production

What option does India have?

  • Since, chip fabrication is capital-intensive (an average sized facility costs $7-10 billion) with long gestation and rapid technology, it appears infeasible for India to strive for full self-sufficiency on chip fabrication
  • But, government-owned semi-conductor facilities already operated by ISRO and DRDO can be expanded and upgradeed
  • Attract global consumer electronics manufacturers by showcasing the  high-potential consumer electronics market and skilled talent pool in R&D
  • Production-linked incentive scheme will be an apt vehicle for this


Source : The Hindu, The Indian Express

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