The Great Semiconductor Shortage
Peter C. EarlePeter C. Earle
– July 11, 2021
Silicon is the crude oil of the Digital Age. Millions of metric tons are mined every year in China, Russia, Norway, the US and elsewhere, much of which is used in the $500 billion global market for semiconductors. In turn, the manufactured silicon chips, wafers, and integrated circuits power tens of trillions of dollars worth of hardware running personal and business software, wired and wireless communication devices, consumer electronics, automotive components, industrial technology, and other critical processes worldwide.
Manufacturing semiconductors involves not only a network of highly specialized firms in an often multistage production process, but a dependence upon firms which produce the ultra-high precision equipment for the fabrication procedure. Thus while silicon is a metalloid and accordingly a commodity, the various chips employing it describe a spectrum of complexity that runs from basic microcontrollers to high performance processors: each of which rarely has substitutes.
“It’s not rocket science—it’s much more difficult,” goes one of the industry’s inside jokes…Manufacturing a chip typically takes more than three months and involves giant factories, dust-free rooms, multi-million-dollar machines, molten tin and lasers. The end goal is to transform wafers of silicon—an element extracted from plain sand—into a network of billions of tiny switches called transistors that form the basis of the circuitry that will eventually give a phone, computer, car, washing machine or satellite crucial capabilities.
Beginning in 2020 and accelerating into 2021, a chip shortage has, to various extents, plagued the estimated 169 industries which depend upon them. While a small number of firms stockpiled chips in anticipation of just such an occurrence, the overwhelming majority of firms for which semiconductors are a key factor input have had to reduce their output. But like so much else, the inadequate supply of semiconductors is at the center of a handful of causes, with policy blunders front and center among them.
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