Why Is There a Semiconductor Shortage?

A shortage of microchips is driving up the cost of everything from consumer electronics to used cars. Learn why in this episode of BrainStuff, based on this article: https://electronics.howstuffworks.com/semiconductor-shortage-news.htm

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Episode Transcript

Speaker 1 (00:01):
Welcome to brain Stuff production of I Heart Radio. Hey
brain Stuff, Lauren Boga Bam Here. Whether you've gone shopping
lately for a new car, a washing machine, a game console,
or any number of other items, you've probably discovered that
the stuff you want is way more expensive than it
used to be and increasingly hard to find. The price

(00:23):
tags on some high end TVs, for example, have risen
nearly thirty since this time last year. New cars are
in such short supply that the cost of used vehicles
is skyrocketing, to the extent that the price of a Saturn,
a brand that's been defunct for more than a decade,
is up by more than twenty six over last year.

(00:44):
So what's up with that? All of these products do
have something in common in that they contain semiconductors, also
referred to as microchips or integrated circuits. These have become
a vital component in this smart gadgetry of our modern
war old, enabling the myriad miracles we expect our possessions
to routinely perform and right now, as a result of

(01:07):
COVID nineteen's disruptive impact upon semiconductor plants in Asia and
pandemic induced distortions of consumer demand that United States manufacturers
off guard. There aren't enough semiconductors to go around, and
the crisis is likely to get worse before it gets better. Gartner,
the global market research and advisory firm, recently predicted that

(01:30):
the worldwide semiconductor shortage will persist for the rest of
this year and that normal supply levels won't be available
until the second quarter. For the article this episode is
based on How Stuff Works, spoke with Rob Handfield. He's
the Bank of America University Distinguished Professor of Supply Chain
Management at North Carolina State University and director of the

(01:52):
school's Supply Chain Resource Cooperative, which studies and works to
improve the flow of products in various industries. He explained
that the scope of this applies to quote, dishwashers, thermostats,
vacuum cleaners, coffeemakers, and cars. Everything has electronics in it.
The most obvious cause of the shortage has been the
disruption caused over the past year and a half by

(02:14):
COVID nineteen. Three Quarters of the world semiconductor making capacity
is in East Asia, and early on the pandemic forced
a few countries to temporarily shut down semiconductor manufacturing plants
along with other businesses, though others, such as China deemed
semiconductor industry labor forces to be essential workers. International shipping

(02:35):
of electronics also has been hindered by the pandemic, and recently,
a new surge in COVID nineteen infections in Taiwan, one
of the world's key sources of semiconductors, has threatened to
interfere with production at a time when it's needed more
than ever. The initial shortage of semiconductors occurred at a
time when pandemic isolation was forcing millions to stay at

(02:58):
home and work and play a remotely that stimulated the
consumer craving for electronics. Expecting a slump in the market,
semiconductor manufacturers didn't invest in additional capacity. When instead demand surged,
the chip fabrication foundries called fabs and industry LINGO weren't
ready to meet it. As a result, the time needed

(03:21):
to fill orders at some factories has gone from the
usual twelve weeks to twenty to twenty two weeks. According
to Handfield, he said, when you order them, you won't
see them for almost six months. Meanwhile, manufacturers who need
semiconductors as components miscalculated as well. Some of the biggest
pain has been felt in the automotive sector. Today's cars

(03:43):
and SUVs depend upon computers to regulate everything from the
fuel going into the cylinders to the brakes and steering,
and according to a recent New York Times article, a
high end vehicle can contain three thousand or more microchips.
How stuff Works also spoke by email with Brent Are
Moritt's associate professor of supply chain Management at Penn State

(04:04):
University's Smell School of Business. He explained that when the
pandemic hit last spring, most automakers reduced their forecasts. Instead,
Morris said, demand for cars and trucks is higher than expected,
a many people who relied on public transport or ride
sharing want their own cars. A fire this spring at

(04:25):
a major Japanese supplier of chips and electronic modules for
several major automakers helped exacerbate the auto industry shortage, though
the plant is now nearing full production again, and fixing
the problem isn't going to be simple or easy. Manufacturing semiconductors,
which can involve etching as many as twenty patterned layers

(04:46):
of circuitry onto a tiny piece of silicon is a
complex process, and the factories needed to perform these tasks
can take two to three years to build. The U
S Senate recently passed a build designed to bolster the
U S tech sector's ability to compete with China that
would provide fifty two billion dollars in subsidies to domestic

(05:08):
semiconductor manufacturers for research and development as well as manufacturing.
The legislation, which still must be voted upon by the House,
would provide a boost to US chip making, which today
only accounts for twelve percent of the global capacity, down
from sent back in. Building new fabs here could help
provide a bigger supply of US made semiconductors, but it

(05:31):
wouldn't have much immediate impact upon today's shortage. A Handfield explained,
there's a lot of discussion around bringing more chip manufacturing
back to the US, but it's not as if you
can just build a factory and start making chips. You see,
semiconductor manufacturers required their own supply chains as well. Handfield

(05:52):
cites the example of one large Asian manufacturer having two thousand,
five hundred different suppliers. A new of would need to
create its own supply chain. Another problem that complicates the
semiconductor shortage is that many uses requires specialized chips, which
makes it difficult to adjust manufacturing to meet surges in

(06:13):
demand for particular products. The Handfield says that one possible
answer to that problem is the development of customizable chips
built from components that could be assembled in different ways,
hasn't get materialized to any level. Meanwhile, as the pandemic
recedes in the United States due to vaccines, the demand

(06:33):
for semiconductors and the resulting shortage may grow even more
dire More, It's said the combination of stimulus funds and
the fact that people have not been spending money on
other things like vacations, air travel, restaurant meals has seen
people want to spend on consumer goods that use chips
at things like new computers, monitors, tablets, and all manner

(06:53):
of consumer electronics. This is putting additional strain on the
supply chain and end the industries that use semi conductors
are only growing as more of our tech becomes smarter.
But on the positive side, more It's expects automakers and
other manufacturers to learn from the crisis and learn how
to avoid future instances. He said, probably the largest innovation

(07:18):
that can help right now is building supply chain resiliency.
The auto industry was famous for reducing inventory, yet in
the circumstance, the drive for efficiency and low inventories has
resulted in shortages. Of course, inventory is not the only
way to build resiliency, yet having spare capacity, flexibility, and
good supplier relationships can help mitigate the future shortages. I

(07:41):
expect that the auto industry will be treating semi conductors
more strategically rather than as a commodity, yet that mindset
is hard to break to. Bday's episode is based on
the article A perfect storm of worldwide catastrophes is called
Singing the Global Semiconductor Shortage on how stuff works dot com,

(08:03):
written by Patrick J. Keiger. Brain Stuff is production of
by Heart Radio in partnership with how stuff works dot
Com and is produced by Tyler Klang. Four more podcasts
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