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Semiconductor chip shortage till 2023 or overproduction by 2025?

Risk sharing to play key role during disruption wherein businesses can collaborate to share digital & infra resources.

Semiconductor chip shortage till 2023 or overproduction by 2025?
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Semiconductor chip shortage has been one of the critical issues in the tech, electronics, and automotive industries over the last two years. The unavailability of chipset and electronics components have materially impacted businesses in terms of revenue and customer experience.

The shortage of semiconductor chips started early in the pandemic wherein governments, across nations, enforced lockdowns. As a result, factories were shut down for months, resulting in production halting and businesses stopped ordering new chips and components that were part of the Just-in-time (JIT) supply chain.

The strategy has backfired as demand for consumer electronics and appliances such as laptops, mobile phones/smartphones, personal care devices, and home appliances have increased greatly across the globe. This demand is attributed to the change in consumer behaviour, remote work and education culture influenced by the pandemic.

The global industry has seen a bullwhip effect due to the supply chain crisis on the supply side, leading to higher lead time for delivery of chips and unprecedented demand by the end-consumers.

In addition to this, the automotive sector also demands a sizable number of chipsets, and lacking a single component can hamper the production cycle of automotive vehicles. Also, the automotive ecosystem is highly dependent on tier1, tier2, and tier3 suppliers, which are prone to supply chain disruption to a larger extent. Automotive industry had an estimated revenue loss of $60 billion in 2021 due to chip shortage.

To cope with higher customer demand and the supply chain crisis, businesses in tech, electronics, and automotive have started developing short- and long-term strategies to streamline production of chips and shorten lead time. Businesses have adopted key strategies, including visibility into supply chain, inventory management, predicting supply and demand with the help of analytic and artificial intelligence (AI) tools and strengthening physical supply chain by improving transportation and logistics capabilities in a short term.

As part of long-term strategy, businesses are also localising and diversifying supply chain with the help of signing Free Trade Agreements (FTAs), nearshoring, opening new production facilities in North America, Europe, Latin America, and Southeast Asia considering that current semiconductor chipsets manufacturers are in Northeast Asia, China, Japan, South Korea, and Taiwan, which is the hub of fabless semiconductor companies namely MediaTek, Taiwan Semiconductor Manufacturing Company (TSMC), and UMC.

Government authorities also acknowledge the shortage of semiconductor chips affecting businesses and economies at a higher level. Hence, several initiatives have been undertaken by the U.S., U.K., European Union, China, Japan, India, and South Korea to support businesses with the help of amendments in existing regulations, policies, and heavy capital funding to develop new production facilities across the region.

Key Initiatives by businesses and government authorities
Europe Chip Act: The European Chips Act will help businesses strengthen Research & Development (R&D), innovation, and development in the semiconductor industry. Approximately €43 billion ($46 billion) fund has been announced with public and private investment to support the initiative. It will help the EU achieve its goal of reaching 20 percent of the market share in chips by 2030.

Intel unveils $88 billion chipmaking expansion plan for Europe: As a part of Europe Chip Act in the first phase, Intel has announced investment of €17 billion ($18 billion) in Germany setting up a semiconductor fab mega factory, R&D and design hub in France, invest in R&D, manufacturing and foundry services in Ireland, Italy, Poland, and Spain. In addition to this, the company is planning to spend €12 billion (nearly $13 billion) in Leixlip, Ireland, doubling the manufacturing space to bring Intel 4 process technology to Europe and expand foundry services. Also, Intel and Italy announced an agreement to develop a back-end manufacturing facility with plans to invest up to €4.5 billion (nearly $5 billion). In total, the company plans to invest €33 billion (nearly $36 billion) in the semiconductor manufacturing sector in the first phase.

CHIPS for America Act: In January 2021, Congress passed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act. Under this initiative, in June 2021, the Senate passed the United States Innovation and Competition Act (USICA) to fund $ 39 billion for semiconductor production plans development and another $11.2 billion for R&D activities in the semiconductor sector.

Intel to invest $20 billion in two new Arizona plants in the US: The company has planned to create a new production unit called Intel Foundry Services which aims to serve the U.S. and Europe market. The company has also announced expansion plans into Europe and other parts of the world.

Canada's Semiconductor Action Plan: Roadmap to 2050: Canada's Semiconductor Council released a comprehensive action plan to transform the domestic semiconductor industry. The action plan includes strengthening and diversifying the supply chain, developing onshore manufacturing, setting up unique specialisation in design and R&D and EVs (electric vehicles), batteries and sensors, and fostering innovation through investment and government funding. The Government of Canada will invest some $ 240 million to bolster the country's expansion into photonics and the manufacturing of semiconductors.

South Korean chipmakers will invest $47.36 billion to compete with global leaders: Country's Semiconductor Industry Association announced an investment plan in 2022, including chipmakers such as Samsung Electronics and SK Hynix. South Korea plans to invest 510 trillion South Korean won ($452 billion) in chips by 2030

Japan approved ¥774 billion ($6.8 billion) in funding domestic semiconductor investment: The package includes three parts including ¥617 billion fund into innovative chip manufacturing production capacity, ¥47 billion for legacy production (analog chips and power management parts), and¥110 billion for the R&D of next-generation silicon.

China's $1.4 trillion investment plan to become leader in the tech world: The Chinese government has directed an estimated $150 billion to China's semiconductor industry and has given USD 1.4 trillion for strategic industries, including semiconductors, in its 14th Five-Year Plan (2021-2025). In March 2021, the Shenzhen government announced a $2.3 billion investment and a 23 percent stake in China's leading foundry, Semiconductor Manufacturing International Corporation.

India gets $20 billion in investment bids for chip fabs: India received proposals from Vedanta Foxconn joint venture with Hon Hai Precision Industry Co, IGSS Ventures and ISMC to set up semiconductor chip production plants with investments of $13.6 billion. In addition to this, the government also plans to invest $5.6 billion under the Semicon India Program.

Impact on the global supply chain
The large-scale developments in the localisation and diversification of the supply chain would create a new revenue opportunity for all stakeholders, specifically supply chain and logistics players. The sustainable long-term roadmap can help logistics players to support the sector's agenda to localise and globalise the supply chain by developing a strong and resilient regional and global logistics infrastructure.

It is imperative for the logistics sector to find favourable near-shoring locations (South America, central and eastern Europe, MEA, and Southeast Asia) and build an infrastructure route with the combination of road and rail (regional and local supply chain) and sea and air (diversified supply chain). Moreover, technology and innovations will help to bridge the gap between supply chain crisis at upstream and midstream and uneven demand at the downstream level with the help of visibility at each stage and sharing critical information across the value chain to make informed decisions in advance.

Risk sharing in the supply chain will play a significant role during disruption wherein businesses can collaborate to share their digital and infrastructure resources to help mitigate larger impact on business revenue.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the view of the associated organisation and of Indian Transport & Logistics News.

Yogesh Desale

Yogesh Desale

Yogesh Desale is a research analyst and has 6+ years of experience in market intelligence and strategy, tracking new revenue opportunities in the area of supply chain and technology across verticals.


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