SEMICONDUCTOR CHIPS
WHY IN NEWS ?
- A pandemic-induced global shortage of semiconductor chips drove down global auto volumes by a quarter in 2021.
- The pandemic is over now, and India recorded its best passenger vehicle sales in FY23.
WHAT ARE SEMICONDUCTOR CHIPS ?
- A semiconductor is a material product usually comprised of silicon, which conducts electricity more than an insulator, such as glass, but less than a pure conductor, such as copper or aluminum.
- Semiconductors, sometimes referred to as integrated circuits (ICs) or microchips, are made from pure elements, typically silicon or germanium, or compounds.
- Their conductivity and other properties can be altered with the introduction of impurities, called doping, to meet the specific needs of the electronic component in which it resides.
- Also known as semis, or chips, semiconductors can be found in thousands of products such as computers, smartphones, appliances, gaming hardware, and medical equipment.
- According to estimates, the average modern car has between 1,400 and 1,500 semiconductor chips.
CHIP SUPPLY SINCE 2021 :
- The covid-19 pandemic led to a global shortage of semiconductor chips as demand for electronic devices surged, which caused supply chain disruptions across sectors.
- The automotive industry relies heavily on these chips for various functions, and was hit particularly hard. According to JP Morgan Research, “the chip shortage is all but over”.
- Global automotive sales volumes are expected to rise 3% in 2023, compared to a 26% decline in the first 9 months of 2021.
- In general, supplies are expected to improve as capacities that started getting added in 2022 continue to be enhanced in 2023.
CHALLENGES STILL EXISTING :
- While there is improved overall availability, the nature of the supply chain disruption has changed.
- Increasing electrification and a preference for high-end passenger vehicles means that shortages of specific chips and electronics will continue for some products.
- This in turn means many vehicle manufacturers are unable to ramp up volumes of in-demand products.
- For instance, some Indian automakers are grappling with a dearth of electronic control unit chips for airbags, which is impacting waiting periods.
- These shortages could remain through 2023 and continue in 2024.
CAUSE OF CHIP SHORTAGE:
- Global supply chain issues are a well-documented problem in a wide range of industries, including both the automotive and semiconductor manufacturing industries.
- MANUFACTURING: The manufacturing world is still struggling to recover from the ongoing COVID-19 pandemic, especially in China and Taiwan – the world’s leading semiconductor manufacturers.
- SHIPPING DELAYS: Delays have been prevalent in the shipping industry. This impacts not only the raw materials and base components coming into semiconductor companies but also the finished products leaving them.
- RAW MATERIAL SHORTAGES: China dominates production of silicon, germanium, and gallium arsenide – the three most important materials used to make semiconductors.
- The mining, processing, and production industries associated with these materials have suffered the same labor and supply challenges as Chinese manufacturers.
IMPACT OF CHIPS SHORTAGE ON PRODUCTION PLANS:
- The loss of 7.7 million vehicles from production is anticipated to cost carmakers USD 210 billion in sales this year.
- Maruti Suzuki, India’s largest carmaker, expects the chip shortage to continue to impact production in FY24.
- Supplies in the first month of this quarter look worse than in the last quarter of financial year 2023, Maruti Suzuki chairman R.C. Bhargava said.
- The company lost 170,000 units in production in financial year 2023 due to the semiconductor shortage.
- Luxury carmakers like Mercedes Benz have even postponed new product launches to ensure they have enough chips to fulfil demand.
INITIATIVES TO RESOLVE SHORTAGE:
- The Design Linked Incentive (DLI) Scheme has been introduced to support domestic semiconductor design companies and help them reach a revenue of more than Rs. 1500 crores during the next five years (2022-27).
- The Production-Linked Incentive (PLI) program was established for the manufacturing of semiconductors and display boards.
- A $10 billion package of incentives to promote semiconductor production in India has been authorized.
WAY AHEAD
- A general improvement in availability can still pan out very differently for companies.
- Automakers are hopeful that the situation will ease in the coming months, but the visibility of chip availability is still limited.
- While 2023 remains a popular prediction for the chip supply to return to normal, some industry insiders like Intel’s Pat Gelsinger have suggested that the semiconductor shortage could stretch into 2024.
- Passenger vehicle makers are factoring a 6-8% volume growth to up to 4.10 million units this fiscal.
- But each automaker’s growth will depend on chip availability and how they match demand.
- Firms are prioritizing top-of-the-line variants to maximize profitability.
- India is finalising plans to manufacture semiconductor chips in a big way, as a part of its ‘Make in India’ initiative.
- The nation is offering more than USD 1 billion in cash to each semiconductor company that sets up manufacturing units in the country.
SYLLABUS: MAINS, GS-3, ECONOMY
SOURCE: LIVEMINT
