The Chip Crisis: 15% Alarming Drop in IoT Production

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Sad news.

The IoT production line continues to be threatened by what’s called the chip crisis since 2020. While some experts say that the chip crisis will end in the next 18 months, others argue that the crisis is still at its middle peak and is expected to persist a lot longer.

When talking about the IoT chip crisis, we’re actually talking about a worldwide threat to an infinite ecosystem of interconnected physical technology devices. All of these IoT devices could be at the heart of your own home such as your personal computer, laptop, refrigerator, washer, dryer, steamer, microwave, phone, smart watch… or even your instant pot.

Are you worried yet? This blog will summarize what you must know about the IoT chip crisis. 

What Is the Chip Crisis?

All of your IoT or electronic devices include one main component, suffering steep shortages in supply compared to the market demands.  This main component is the brain of IoT devices: the core processor; without it, any smart device would become a useless piece of metal. 

The chip crisis is the latest shortage issue in the semiconductor manufacturing supply chain. But, why is it lately such a fuzz? Since it’s not an isolated occurrence, rather it’s an alarming symptom of a systemic problem that is not going away without rethinking the entire semiconductor manufacturing supply chain. 

In fact, the current chip shortages are not limited to critical core processor components. Shortages are dangerously wider including less critical but still crucial components, such as mature sensors, microcontrollers, and power regulators.

Why Are We Witnessing the Chip Crisis?

The semiconductor manufacturing supply chain is the main provider of all these components. Since 2020, this supply chain has been disrupted. So, allow us to explain why. The driving force behind the acute shortage of semiconductors would be the COVID-19 breakout.

The COVID-19 pandemic transformed consumption habits. For example, computer sales in 2020 exceeded the record held since 2014 of 302 million devices sold worldwide.  At the same time, entertainment expenses, like travel and cinemas, dropped drastically. So, one could say that these expenses were redirected towards buying TVs, smart phones, and game consoles.

Stats reveal that in 2020, the world population bought more than 225 million televisions, 1 billion and 378 million smartphones, 9 million Playstation 4 consoles, 4.5 million Playstation 5 consoles, and 2.6 million XBox One. 

Certainly, this increase in consumer device sales driven by working from home trends and continuous lockdowns disrupted the semiconductor industry. As a result, chipmakers were left struggling to respond to a growing global imbalance in the semiconductor industry. 

Another major reason for the semiconductor shortage would be natural disasters of another kind.  Prolonged drought hit Taiwan during 2020 affecting water supplies for the largest chip manufacturers in the country. In point of fact, manufacturing 1 chip requires 8000 liters of water.

Same year in February, semiconductor companies in Texas, USA had to close all their facilities due to winter storms that caused power outages in the state. Thus, their production rates dropped.

Later in October 2020, the Japanese automobile chips manufacturing company Renesas bursted into flames and remained out of service. 

Technology companies pressured chipmakers in the first half of 2020 to provide increased numbers of chips that were later on withheld in the companies’ warehouses. 

The first sector to suffer from these practices was the automobile industry. When sales got back up in the second half of 2020, chipmakers refused to provide automobile manufacturers with their demands of chips.

Chipmakers did refuse for 2 reasons. On one hand, chipmakers don’t consider automobile manufacturers among their major clients. On the other hand, the profit margin of chips sold for auto manufacturers is less than that of chips sold for technology companies. 

If you need a clearer picture, imagine that the whole auto industry consumes chips for 37 billion dollars per year, while Apple, on its own, pays 56 billion dollars for chips per year.

Who Are Chipmakers?

The global chip manufacturing industry is a large one with an estimated worth of more than 500 billion dollars. The number 1 manufacturer in this industry is the Taiwan Semiconductor Manufacturing Company – TSMC

TSMC Headquarters

TSMC by itself controls 56% of the semiconductor production market. That’s why some experts label it as the number 1 company in the whole world, not just the semiconductor field. 

In second place comes the South Korean giant: Samsung with an 18% share of the semiconductor production market. 

Following in third place, are the American GlobalFoundries and the Taiwanese UMC with a humble 7% market share for each company.

Samsung Research America, California

In sum, 2 conglomerates – TSMC and Samsung – control 74% of the whole semiconductor market.

How Is the World Resisting the Chip Crisis?

The World Economic Forum even calls the chip crisis as the chip famine and IoT devices would be its main victimes. It’s predicted that the IoT chip shortage will shave a 15% off IoT growth in 2022, specifically 5G devices growth that require a larger number of chip components. 

Therefore, you’re most likely to observe IoT-based smart products like appliances, automobiles, and consumer electronics to be unavailable, delayed, or overpriced to make up for the manufacturers’ losses.

Manufacturers also planned for damping their production and sales numbers like Apple who will decrease its production of smart devices by 20%, or Toyota who suspended 16 of its production lines.

Adopting another approach, some manufacturers are willing to improve their semiconductor investments for up to 355 billion dollars for the next 5 years such as the case of Samsung. That’s one bright light at the end of the chip crisis tunnel.

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