A chip’s tale
An unexpected shortage
You may have heard some news about the worldwide shortage of chips. Not potato chips, or wood chips. We are talking about integrated circuit chips, a.k.a. silicon semiconductor chips, like the ones you could find inside your PC, at least when manufacturers still allowed you to open the case without voiding your warranty. Yes, some things from the past were nice.
Chips are employed in every device that has even the slightest intelligence, from your smartphone to the engine control electronics that allow you to drive your car, to the drone that you use to have some fun with your kids on weekends, if your country’s current Covid 19 restrictions allow you to go out at all.
Why?
So, you may wonder how that shortage came to happen. Since chips are so fundamental for our current way of life, both suppliers and consumers should have developed some contingency measures already, don’t you think?
I made myself that question a few days ago, so I started to do some research to find out the reasons for this shortage and I found some interesting facts and some scary ones.
And they were three…
The first reason for the shortage happens to be obvious: the ongoing worldwide Covid19 pandemic. The sudden necessity to remain locked at home forced people all over the world to be able from home, school from home, and meet with other people remotely.
So, that old, forgotten, and lonely desktop PC that had been gathering dust the last few years suddenly became useful once again. And this was just the beginning, then everybody went to get new laptops, chrome books, desktop PCs, tablets, routers, and phones to be able to stay at home and keep on doing their “normal” activities, like working, or studying, or watching Netflix.
Currently available estimates state that this market grew above 26% when compared with the year before. This market had been falling quite dramatically in the last few years due to the switch to mobile devices. There were a lot of market analysts who were announcing the death of the PC.
But if you have tried to maintain your workflow with the typical 13″ laptop, while at the same time avoiding becoming an XXI century version of The Hunchback of Notre Dame, you will have to agree that it is not feasible.
On top of that, bitcoin data miners were hoarding some specific hardware, such as high-performance CPUs, RAM sticks, and graphics cards. And computers were being bought in massive numbers by corporations that needed to supply them to their stuck-at-home employees.
Therefore, people who were not able to buy a new PC also went shopping for upgrades for their old computers such as CPUs, graphics cards, HDDs or SSDs, monitors, and webcams to make them usable once again.
Under that demand, suppliers switched to produce chips for consumer electronics since they were receiving order cancellations from industrial consumers such as car and airplane manufacturers, whose production had nearly stopped due to the sudden drop in demand.
The second reason for the shortage: on August 23, 2018, as part of the Trump’s administration measures taken in the declared trade war between the US and China, there was a restriction to import key Chinese-made goods, which included chips made by SMIC (Semiconductor Manufacturing International Corporation), China’s main supplier of these devices. This manufacturer supplies about 11% of the world’s chip market.
Trump’s argument at the time was that trade wars were “good and easy”. Yes, sure thing.
This import ban forced existing SMIC customers to resort to other manufacturers such as Taiwan’s TSMC and Korea’s Samsung. But these suppliers were already working at full capacity. And really didn’t affect SMIC at all since the local Chinese market could absorb all its production without problems. Trump really is a man of vision.
The third factor that completed the perfect storm was completely unexpected: semiconductor fabrication methods require access to water, lots of water. Since chips are made by printing sequentially photolithographed circuits into silicon-made wafers, after each step, the wafers must be washed and cleaned with ultra-pure water to assure that no impurities are present. This requirement is necessary since the slightest speck of dust can make a wafer unusable.
Taiwan’s main chip producer is TSMC (Taiwan Semiconductor Manufacturing Company Limited) a company that, in 2020, had a revenue of 48 billion USD. Its main production facilities, located in Hsinchu (Northern Taiwan), require a constant supply of 63000 tons of water per day.
Taiwan’s chip manufacturers hold a 51% share of the global chip market. Chip production facilities are a strategic resource for Taiwan’s economy and the world’s tech industry. And it depends on easy access to water.
This was never an issue, since Taiwan is one of the rainiest countries on the planet, with a yearly average precipitation of 2405 mm. Rain falls in one every of two days on average. Taiwan is a humid country and water supply has never been a matter of concern.
The rainiest part of the year comes with the arrival of the monsoon, like in all southeast Asia. The hot humid air of the Indian Ocean is transported by the wind to the north, where it meets with the chilly air that’s coming from the north and hits the Himalayan Mountain range. This sequence of events causes rains, continuous rains that provide water for all the Southeast Asia region, a phenomenon known as the monsoon.
But something happened in 2021, the monsoon never came. The country’s water reserves fell by 70%, including the water reservoir employed by Taiwan’s semiconductors industry. And no water means no chip production. The 2021 drought also implies power shortages due to the extraordinarily low level of water reserves for hydroelectrical power plants.
And why the monsoon never came? You may suspect the answer: climate change due to global warming.
Semiconductor production facilities, commonly known as foundries, are massive high-tech industrial plants that require massive amounts of time, money, and highly trained personnel. They simply cannot be built from one day to another.
Dire consequences…
The current chip shortage is dramatically affecting more than 169 industries: from engineered wood product manufacturing, metal and alloy products manufacturing, car manufacturing, TVs, kitchen devices, CNC machines, the whole IoT and IIoT market…
The ongoing digitalization process that seed to be in full acceleration under the 2020 pandemic has slowed suddenly because every smart device needed for transforming things into smart things requires a chip.
Need more data to confirm the magnitude of the problem? In the automobile market, 5% of the industry’s GDP is spent on microchips and related semiconductor-based devices. The industry simply cannot make cars without those chips.
Any approach to solving the chip scarcity will not produce immediate results. New foundries located outside Taiwan would demand huge investments and years of work. Enlarging the remaining factories located in South Korea, Singapore, Malaysia, Japan, and the US would require equal amounts of investment.
This is the time for action
Global warming and its consequences are going to make weather-related crises, like an unexpected Taiwan drought, more frequent over time. Thus, making world commerce more unpredictable.
The world is facing a surging crisis that respects no frontiers. And everybody will be affected in one way or another. Worldwide crises require worldwide implemented solutions. Any country’s individual actions are worthless without a globally backed plan.
The world needs to undertake unified actions to ameliorate climate change now.
Otherwise, soon you may not only be unable to upgrade your computer. You may not be able to get food, or drinking water, or even be able to go outside due to an unexpected heatwave, or typhoon, or snowstorm.
The time of reckoning has arrived.
Mirko Torrez Contreras is a Process Automation consultant and trainer that started to worry about global warming after watching the shrinking of Patagonian glaciers over 10 years of trekking. The opinions exposed in this article are strictly personal. No affiliation exists between the author and the companies mentioned. All the information required for and employed in this article is of public knowledge.