Silicon, the second most abundant element on Earth, is suspending manufacturing worldwide!
Microchips are strategic inputs in almost every electrical device regardless of its technological advancement including automobiles, mobile phones, computers, military equipment, etc. Therefore, any change in the microchips market affects all other industries.
A microchip is a set of electronic circuits created for the purpose of storing and processing information of the device to which it is attached. They are created on a silicon wafer that is considered a semiconductor; silicon is made from sand which is melted and cast to shape a cylinder that is later sliced into thin wafers. Although silicon is abundant, only a few chipmakers are available globally.
Microchips embedded in electronic devices such as PCs, servers, and other communication devices enabled the world to smoothly transition to a virtual world during the pandemic in which global microchips sales reached 250 million in 2020, and global sales continue to increase by almost 26 % in 2021 reaching an all-time high of USD 555.9B of revenues, and it is expected that the global revenues to reach USD 600B by 2022. Meanwhile, some industries such as the autos industry reduced their demand for chips during 2020, in addition to the sudden increase in demand, the supply side was affected as well. Chipmakers have halted their production for a period of time due to the surge in Covid cases coupled with the precautionary measures imposed by governments worldwide against the pandemic.
The unforeseen changes in the demand for microchips caused grave repercussions on the economy that can be felt till now causing a shortage in the supply of microchips during the past two years, and the shortage is expected to continue in 2022 constraining the global economies.
However, once the economy started recovering, the automakers started reordering their microchips; however, this sudden change in the demand for microchips cannot be met instantly due to the fact that the advanced microchips industry is almost monopolized by a Taiwanese company called “TSMC” which was founded by Morris Chang in 1987; thus, halting the production of vehicles worldwide causing around 200 billion USD loss in revenues for large companies such as GM Motors and Toyota. GM Motors had a cut in its revenues by 30 % during Q3 in 2021, and the company’s diluted EPS decreased by 30 % from USD 1.93 in Q4 2020 to USD 1.35 Q4 2021, while Toyota had a decrease in production by 500 thousand units during Q4 2021, and the company has forecasted another decrease in the production of 150 thousand units during February 2022 due to the shortage which caused 11 out of 28 lines of production to be suspended during February 2022.
To overcome such grapples in the supply chain of the chips, governments are rallying in the R&D in microchips to be able to compete as soon as possible. The US government is working on a bill Chips for America Act, along with a stimulus package of a USD 50B for microchips manufacturing, the EU declared a European Chips Act of around USD 17B solely for evolving the microchips industry, besides other initiatives by China, Taiwan, and other advanced Asian economies.
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