Though the US is well on its way toward containing the COVID-19 pandemic, not all countries have been as fortunate. In Taiwan, the struggle to control COVID-19 cases has caused a disruption to the production of semiconductor chips, and companies across the world are already feeling the ramifications.
In time, the semiconductor shortage will be solved, but the situation has exposed a troubling snag in the supply chain. Industries that depend on these products should prepare for extensive changes heading their way in the months and years to come. Keep reading to find out the latest updates on the manufacturing situation in Taiwan and all the related supply chain consequences.
What’s Happening with the Semiconductor Supply Chain?
Following an oil crisis in 1973, a group of businessmen and Taiwanese government officials met to discuss potential new endeavors into technology to improve Taiwan’s local economy. Taiwan’s government quickly began funding research for a new form of technology – semiconductors. Within years, manufacturing plants began to form and earn business from companies around the world. One of those plants, Taiwan Semiconductor Manufacturing Co, eventually became Apple’s semiconductor supplier of choice and is currently the largest chip manufacturer in the world. Thanks to those early investors, Taiwan is now the epicenter of semiconductor manufacturing, and many of the world’s largest companies are heavily reliant on them for a steady stream of chips.
Unfortunately, Taiwan has seen COVID-19 cases surge in recent months. Due to geopolitical tensions, the country has had a limited supply of vaccines, and less than 1% of the population is fully vaccinated so far. Taiwan spent much of May and June under Level 3 restrictions, just short of a full lockdown. Over the past few months, many plants in Taiwan have been continually affected by outbreaks, leaving them short-staffed and making production difficult. Some have even had to halt operations completely for periods of time, and consequently, the total output of semiconductors has been significantly lower than usual.
How Have Companies Been Affected So Far?
Although most companies that design and utilize semiconductor chips are located in the US, almost all the major semiconductor manufacturers are based in Asia. In fact, just two semiconductor manufacturers in Taiwan hold 72% of the global market revenue, according to TrendForce. Throughout the pandemic, corporations that rely on these manufacturers for their parts have discovered that they are extremely vulnerable to any price increases, disruptions, and delays.
So far, automakers have felt the semiconductor supply shortage the most. In order to function properly, most new vehicles require hundreds of semiconductor chips. Research from Bloomberg suggests the shortage may cause carmakers to lose up to $61 billion this year in revenue. Additionally, tech companies like Apple and Samsung have had to delay new smartphone launches due to limited access to semiconductor chips. By the end of Q2, smartphone production will likely be reduced by an estimated 5%. For reference, that means there will be about 15.5 million fewer smartphones available than usual. Companies that produce other electronics, including televisions, video game consoles and home appliances, are also expecting future delays and product shortages.
What Are the Long-Term Consequences?
This serious disturbance in the semiconductor supply chain is drawing scrutiny from many sources, including international governments. The European Union’s Commissioner, Thierry Breton, reportedly sees the shortage as an opportunity to overhaul the industry’s supply chain. Earlier this year, President Biden conducted a 100-day review of the US’s manufacturing supply chain and specifically assessed our process of obtaining semiconductors. Then, last month, the Senate approved a new bill, the US Innovation and Competition Act, which will provide $52 billion in funding for domestic semiconductor manufacturing. The bill is designed to encourage companies to build new tech hubs throughout the US and begin reshoring semiconductor production to prevent supply chain disruptions from happening in the future.
If the semiconductor industry continues to be reshored, it may prompt some companies to become more vertically integrated to avoid rising costs. For example, Intel has already started to take on more of their own semiconductor chip manufacturing. This integration process, while potentially beneficial long-term, will require significant capital up-front, along with an increased workforce and constant innovation to keep up with competitors.
If you’re considering vertical integration or simply wondering how your company can plan production around potential disruptions, it may be helpful to utilize an advanced planning and scheduling tool. Thanks to nearly 30 years of R&D investment and real-world experience with some of the most complex manufacturing processes, VirtECS is the most complete design, planning and scheduling solution. For more information on how VirtECS can optimize the processes for your organization, download our guide here.
