One of the major news stories from last year was the global semiconductor shortage. And while the situation appears to be improving slowly, it’s looking like the short supply will last well into the new year.

We take these incredible semiconductors a lot for granted. Silicon might be one of the most abundant elements on the planet, but it takes hundreds of steps to turn sand into a computer chip. The result is one of the most complex products we have ever made, created with the help of machines that in turn are the most complex in human history.

And we use them not just in computers but in everything. Many of the goods we buy are in some sense computational devices these days. Adding chips makes products better.

The value of chip content keeps rising. The typical new automobile contains about 1,500 chips, with some models using up to 3,000. 

Twenty years ago, computer chips accounted for about 18% of the cost of a new car. By last year, that more than doubled to 40%, and the figure is expected to exceed 45% by the end of the decade.

While chip manufacturing companies like STMicroelectronics are working on building new manufacturing plants, lead times on the development of new plants tend to be about five years. 

Considering that the average automotive manufacturing plant can be up and running in about six months, there’s quite a lot more work that goes into building a chip manufacturing plant.

Given the complexity and fragility of semiconductor chips, it takes about five months for a plant to process and fulfill an order. Making it difficult for manufacturers using these chips to plan ahead, especially with rapidly changing market conditions. 

Also, most chip manufacturing plants run for a full 24 hours a day, 365 days a year. So simply adding overtime shifts isn’t a possibility to force our way out of the shortage.

The complicated and time-consuming nature of chip manufacturing makes it hard for companies like STMicroelectronics to rapidly respond to the supply crunch that we find ourselves in. 

Given all this, the chip shortages are expected to remain throughout 2022. There’s no quick fix to the situation, but over time the situation will improve with the development of new manufacturing plants. 

To a bright future,

Ray Blanco
Chief Technology Expert, Technology Profits Daily
AskRay@StPaulResearch.com