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The advent of Covid-19 in early 2020 sparked unprecedented and unimaginable problems for the world. However, some were quick to adapt according to the new normal.

Other than the health crisis, other problems plagued nations including travelling issues, closure of businesses, collapse of oil prices, large scale layoffs and chip shortages.

The semiconductor (or chip) production took a hit during the global health emergency as industries all across the globe either cut their working capacities or shut down for several weeks, in accordance with the laws of their respective nations.

As a result, the semiconductor industry, that emerged as one of the most important business industries amidst the 21st century chip revolution, took a hit because its production fell to zero.

The semiconductor production starkly differs from production of other tech components for two main reasons.

The first one is that the chip production process is time and energy consuming because the average time taken to produce one batch of chips (or one chip) is nearly six months. This is because semiconductors are a combination of several components, the most important of which is silicon.

Silicon is a mineral of limited supply available in just a few countries of the world. Due to the ongoing tech revolution, the mining of silicon has to be consistent with the demand of the world.

Moreover, the chip-making process has to be performed with strict diligence as most of the procedures are time-bound and a minor mistake can scrap the work done over the past six months.

The second reason why chip production is difficult is that the establishment of a new semiconductor plant can easily consume one to two years.

The semiconductor fabrication plant (known as fab or foundry) is a large-scale facility that can at times occupy an area similar to a small city. The plant has to have dozens of departments because the procedure to make a chip is highly complicated and involves many components. Apart from silicon, it needs to have metal, wires, sensors, screws, magnets, resistors, capacitors and other material.

To recall, near the end of 2020, the chip supply faced a crunch along with every other commodity in the world due to Covid-19. The problem prolonged because there is no short-term solution to produce a chip and the minimum time taken to make one batch is six months or more.

Therefore, the world braced for a technology winter as prices of hardware, mobile phones, laptops, graphic cards, tablets, e-books, electric cars and other digital merchandise soared.

To add to the woes of the global chip industry, Renesas, a prominent semiconductor foundry in Japan, caught fire and had close down for three months for repair operations. This caused the supply crunch to intensify and directly struck Samsung as it was the prime consumer of Renesas chips.

This also stretched the time frame for production of Renesas’ orders from six months to at least nine months and also reduced the supply size because the factory planned to start working at partial capacity as complete repairs required more time.

The remaining chip giants of the world were based in Taiwan.

TSMC, in particular, is the global leader in chip production whose customers include Apple, AMD, Nvidea, Intel and others. While TSMC was already struggling to fulfill orders of its clients, Samsung enlisted the firm as its main supplier.

This further intensified the shortage and from the beginning of 2021 to first quarter of 2022, the prices of tech merchandise skyrocketed.

This also caused the tech industry to produce limited units of its merchandise.

Present scenario

After March 2022, the semiconductor crunch was resolved as global chip supply normalised and now, the supply is nearly matching demand.

As a result, the prices of hardware have normalised and once again, flagship and high end phones, laptops, tablets and graphic cards are priced in the range of their consumers (maybe not in Pakistan).

Earlier, many such materials were being sold in the black market for many times their original prices. The increase in their demand following work-from-home models further elevated their prices.

Now, the firms are producing merchandise in access keeping in mind that another unprecedented event can further increase the demand of the produce.

Due to efficient planning and execution, the problem that was once thought to take at least 5 years to resolve was solved in 1.25 years.

Most of the chip plants are either in process of expanding capacity or already enhanced their production. Moreover, additional demand came from people or companies involved in cryptocurrency mining. The method to mint cryptocurrencies involves a lot of graphic cards hence enthusiasts of digital coins hence graphic cards vanished from the market. The crypto collapse that has been in effect for the past one year dampened the interest of such people and they sold their graphic cards thus alleviating the scarcity.

Therefore, this daunting problem seems to be solved.

Current challenges

A fresh dent to the chip segment is coming from Russian invasion of Ukraine given that Kiev is a huge supplier of raw material for chips. However, the input can be imported from other nations as well hence the problem is not likely to hit the chip output although an uptick in prices is expected.

However, tension in Taiwan would spell doom as any disruption now would trigger a fresh wave of crunch for the tech segment. A resurgence of mutations of Covid-19 is playing on everyone’s minds and such an event would drag the global economy to historic lows and affect the chip industry.

Once the planned Metaverse comes into effect, the demand for chips will surge again because AR and VR handsets, mobiles, tablets, laptops, PCs and cryptocurrencies will play a huge role in it. Therefore, the chip industry must keep it in mind that in such an event, the chip suppliers would have to enhance production at least six months in advance in order to keep prices of the equipment stable.

The article does not necessarily reflect the opinion of Business Recorder or its owners

Omar Qureshi

The writer is Senior Sub Editor at Business Recorder (Digital)

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Az_Iz Aug 26, 2022 05:59am
Good to see articles with technical details.
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