supply and demand in global chip shortage

SUPPLY AND DEMAND IN GLOBAL CHIP SHORTAGE .... After digging more and reading Graham Scott''''s article titled "Why The Chips Are Down: Explaining the Global Chip Shortage" on the Jabil web

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Table of Contents

PREAMBLE 5

I INTRODUCE 5

1 Summary of Graham Scott's article about the Global Chip Shortage 5

2 Semiconductor market overview 6

II SUPPLY AND DEMAND IN GLOBAL CHIP SHORTAGE 7

A Supply 7

1 Chip’s technology in market 7

2 Materials, human resources 8

3 Chip manufactures 9

B Demand forecast in 2022 11

C Price 11

III THE CAUSES OF GLOBAL CHIP SHORTAGE 12

1 Covid 19 pandemic 12

2 Lack of personnel 14

IV THE IMPACT OF THE GLOBAL CHIP SHORTAGE 15

1 The automobile industry 15

2 Phone industry 16

V GOVERNMENT IN GLOBAL CHIP SHORTAGE 16

REFERENCES 19

APPENDIX 24

In recent years, we have noticed that almost every day's attachments, such as phones, headphones, motorcycles, or cars, have one or more chips inside A chip is like the "brain" of a technological product, which is indispensable in modern society and certainly also the foundation for future digital technology But according to reputable newspapers in Vietnam, such as VNEXPRESS or NHANDAN, they said that chips are facing a global crisis when demand is too high compared to supply being disrupted, leading to serious impacts on some industries

After digging more and reading Graham Scott's article titled "Why The Chips Are Down: Explaining the Global Chip Shortage" on the Jabil website, our group decided to choose the microeconomic issue "global chip shortage" to learn more about what is happening to supply Chips are disrupted while the increasing demand of businesses causes chip prices to change The influence of this indispensable component on today's car and phone industries There are also actions and regulations that governments around the world have set up to improve or solve this shortage

1 Summary of Graham Scott's article about the Global Chip Shortage

The first thing mentioned after the brief opening paragraph is the cause of the global chip shortage Specifically, the author mentioned the COVID-19 pandemic and its long-term effects as what sparked the crisis "The COVID-19 pandemic kickstarted the chip shortage, and its long-reaching effects—including virus outbreaks, labor challenges, and geopolitical uncertainties—have fueled it" (Scott, 2022) When factories must close to minimize the spread, it makes production time longer than ever It takes no less than 40 weeks to produce a chip "As of December 2021, lead

times for most semiconductors — no matter the type — are running 40 weeks or more." (Scott, 2022)

Then there is the impact that global chip shortages have had The auto industry is hit hardest when, depending on the technology that has it, a car can have more than 100 chips on board to control safety, electrical, entertainment, and connectivity features "The automotive industry has likely been impacted the most by the chip shortage" (Scott, 2022) and this has also led to a 15% increase

in prices on newly launched cars compared to 2020 The phone industry has also suffered from smartphone companies having to delay the launch of some of their most in-demand products due

to shortages

And finally, the directions that the author gave on how to navigate the global chip shortage The only thing that can be said for sure about the global chip shortage is that no one is sure when it will end "All in all, the answer to this burning question is not "soon." (Scott, 2022) Every original equipment manufacturer (OEM) can take a series of steps to ensure they are in the best possible position as chip shortages continue alignment, supplier qualification, visibility, increase lead times

in planning systems, and additional buffered inventories Both short-term and long-term strategies are necessary to withstand the challenges posed by the semiconductor shortage This is not the only ongoing component shortage, and it certainly won't be the last (Scott, 2022)

2 Semiconductor market overview

According to the article on global chip sales in February 2022 of the Ministry of Industry and Trade of The Socialist Republic of Vietnam

The Semiconductor Industry Association (SIA) recently said global semiconductor sales in 2021 reached a record level of more than $500 billion for the first time, as semiconductor chip makers

the pandemic According to the SIA, global chip sales last year rose 26.2 percent year on year to

$555.9 billion, with the highest-ever shipments of semiconductor chips at 1.15 billion units (TTXVN, 2022)

By region, semiconductor chip sales in the world's largest semiconductor chip market, China, rose 27.1 percent last year, while the American market had the highest growth rate of 27.4 percent Europe and Japan expanded by 27.3 and 19.8 percent, respectively, while Asia-Pacific and other markets expanded by 25.9 percent World demand for semiconductor chips is expected to be less likely to be fixed anytime soon (TTXVN, 2022)

SHORTAGE

A Supply

1 Chip’s technology in market

14nm and lower chains all use FinFET technology* The numbers 14nm, 10nm, 7nm… make sense in terms of marketing, but no longer shows gate length because the structure is now 3-dimensional It helps the company advertise that their chip is in what "generation" The smaller the number, the better consumers will think it is, and it helps the firms compete better than the competition However, manufacturers' production lines and technology differ, so a direct comparison of numbers is not entirely accurate (Duy Lan, 2021) In 2021, only Samsung, TSMC, Intel reach 10nm, 7nm, 5nm.**

**Appendix 2: Number of Semiconductor Manufactures with a Cutting Edge Logic Fab (Source: WikiChip)

2 Materials, human resources

Gali arsenide and germanium are some semiconductors that are used in the spectrum, especially silicon because of their cheap price and ease of preparation There is also graphene, a recently discovered metamaterial that is expected to replace silicon The fact that silicon has increased in price by more than 300% in less than 2 months as supply plummets due to policies to limit electricity consumption in some sectors to minimize the amount of carbon generated in China, including the world's largest silicon producer, should cause a major supply shortage Specifically, authorities asked silicon producers in Yunnan province to reduce output by 90% (compared to August 2021) in the period of September 2021 to December 2021 amid low hydropower production and efforts by authorities to achieve the goal of reducing energy consumption and protecting the environment The move caused the price of silicon to jump from $1,240-$2,640 a ton to $10,440 a ton (Chi Lan , 2021)

Appendix 3: Price for the industrial metal surged after power curbs in China (Source: China Nonferrous Metals Industry Association)

2.2 Lack of human resources

Manufacturers are facing an additional problem of highly qualified human resources in the field

of electronic chip production Due to the widening gap between supply and demand, the world's largest chip manufacturers are competing strongly for manpower to expand production facilities around the world, helping to solve the problem shortage of semiconductors However, multimillion-dollar fabrication requires thousands of qualified engineers and technicians who monitor and manage the production process to operate

Appendix 4: The number of employees expected to be used in 2022 in Taiwan (Source: LinkedIn,

104 Job Bank, Nikkei Asia)

3 Chip manufactures

3.1 Market share

Appendix 5: Semiconductor market share (Source: Trendforce)

Currently, Taiwan, China, and South Korea account for a total of nearly 87% of the global semiconductor market share (Duc Anh , 2021)

TSMC (Taiwanese semiconductor manufacturer) is currently the largest semiconductor manufacturer in the world with a market capitalization of more than 600 billion USD TSMC produces chips for leading technology companies such as Apple, Intel, and NVIDIA The most prominent devices are Apple products, from the MacBook Air to the iPhone

company was founded in 1968, and since then, it has developed to become the most important revenue giant among semiconductor companies We provide these processors for major brands and computer technology such as Lenovo, HP, and Dell

Samsung: Founded in 1969, this Korean electronics company is one of the largest semiconductor manufacturers in the world Globally, the company has nearly 290,000 employees and operates in

74 countries commonly used in smartphones and tablets, especially in the company's Samsung Galaxy devices

There are also other companies: Infineon, a chip manufacturer based in Munich (Germany), ST Micro, SK Hynix

3.2 Revenue of chip manufactures

TSMC reported a record $6 billion profit in the fourth quarter of 2021, up 16.4% year-on-year thanks to strong global demand for chips for cars, laptops, smartphones, and other electronics During the quarter, the company's revenue reached $15.8 billion, up 24.1% compared to the fourth quarter of 2020 The world's largest contract chip maker, TSMC has large corporate clients like Apple, and Qualcomm (Duc Anh, 2022)

Two years of Covid-19 is a period of strong business for Samsung globally In the third quarter of

2020, the airline recorded a record of 66.96 trillion won ($57.4 billion), but by 2021, this level will continue to be broken with 73.98 trillion won ($63.4 billion) Revenue "only" increased by 10%, but the Korean electronics company's profit increased by 26%, reaching 15.82 trillion won ($13 billion) over the same period in 2020 (Tuan Hung , 2021)

Net income reached 6.8 billion USD, up 60% Intel on January 26 said that 2021 will be a record year for the chipmaker's revenue, amid rising demand and strained supply chains Intel's revenue

in 2021 reached $ 79 billion, of which about $ 20.5 billion was in fourth-quarter revenue However, its final quarter profit for 2021 fell 21% year-on-year to $4.6 billion Profits for the whole of last year also fell about 5% year over year to $19.9 billion (Ly Khanh , 2022)

2022, after reaching a forecast of $552.96 billion in 2021 (Lan Phuong , 2021)

During the epidemic period, the demand for memory chips in the manufacturing industry of desktop computers, laptops, game consoles as well as Wi-Fi devices to meet special needs increased when people converted to digital forms to study, work online, and play from home during the COVID-19 pandemic

Currently, when economies begin to reopen, gradually recovering from the pandemic, the demand for electronic chips in the automotive and other industrial products industry will increase again and will continue to increase higher Moreover, it requires an abundant supply of chips

C Price

supply The chemicals used to make the chips increase by 10 20% In addition, they increase the –price because the capital is needed to fund the increasingly expensive production activities Because of the impact of the Russian-Ukraine conflict, chip manufacturers have faced increasingly serious supply issues And the demand is still high while the supply is still limited Energy prices, including electricity, are also increasing sharply Chip production requires large amounts of electricity Similarly, the labor force needed to build new production facilities is also lacking, so their salaries are increasing

Specifically, Samsung is said to be considering an increase in chip production prices to compensate for the escalating cost of input materials Depending on the process, they will increase the price of semiconductor chips by 15 to 20% Samsung is expected to officially increase the price in the second half of 2022, more than 6 months after increasing the price of 20% of TSMC in late 2021 According to Bloomberg, the cost of manufacturing chips is increasing by 20 to 30 percent, as is the capital invested in building a new factory to ensure long-term orders are filled term for the next 5 years These companies explain that the price increase is due to high inflation, increased costs and financial demand to support production expansion plans

1 Covid 19 pandemic

Companies begin to cut transactions, which is why chip orders drop sharply and their production begins to be limited

However, isolation around the world has increased demand By working and entertaining themselves at home, users start to increase their online ordering level, especially in the electronic segment In a way, the pandemic forced the population to "digitize" and digitize more semiconductors Unfortunately, the chip does not have a special production process because it goes through many different cycles and machines before it is released for sale Very few companies in the world specialize in manufacturing ICS, and this is the cause of the inappropriate appearance

on the market (Keyplan, 2021)

The deficit chip is getting worse in the US and Europe, hindering the development of many corporations Before the COVID-19 epidemic, an important source of shortage was computer chips, which provide energy for many important electronic products for humans in a world that is increasingly dependent on technology This issue not only makes it difficult to provide laptops in the context that many students are forced to study at home, especially in the automotive industry—where factories are closed because there are not enough chips To complete the construction of the car, The shutdown has promoted consumer electronics sales by forcing automobile parts suppliers

to use computer chips for accelerated data transmission and touch screens

Chipmaker manufacturers have changed the situation by rearranging factories to serve the consumer electronics market, which creates more revenue for them than the automobile market After the COVID-19 epidemic, automobile manufacturers began to reopen factories earlier than

needed for cars

2 Lack of personnel

The shortage of highly skilled engineers is one of the factors contributing to the global chip shortage According to the evaluation, a major issue is the scarcity of trained engineers, particularly those with the expertise to design and address the complex issues associated with chip fabrication The Wall Street Journal claims that the widening imbalance between supply and demand is the primary cause of this The largest chip makers in the world are scurrying to find personnel for the multibillion-dollar facilities they are constructing to alleviate the scarcity of semiconductors

The issue is particularly worrying in Taiwan, where chipmaker TSMC is based, with the recruitment gap at its greatest point in more than six years A study from the hiring site 104 Job Bank in August 2021 states that there is a monthly shortage of workers in the semiconductor industry of about 27,700, an increase of 44% over the previous year Chip manufacturing wages rose to their greatest level in more than ten years Taiwan's aspirations to lead the world in cutting-edge technology may be derailed by the country's shortage of qualified engineers Taiwan's wait for new hiring in the semiconductor industry is at a six-year high, according to 104 Job Bank The August 2021 report indicated that there was an average monthly shortfall of semiconductor workers of about 27,700, up 44% from the prior year The average salaries in the chip business have reached their highest level in more than ten years