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Business Unusual

We are running short of the most manufactured item in history

14 April 2021 7:15 PM

Metal-Oxide semiconductor transistors are arguably the most manufactured artefact in human history and there is a global shortage.

Disasters are rarely a single event, but almost always a series of major incidents that add up to a disaster and this is one of those.

Basically a supply and demand failure with a rising demand outstripping the supply. What makes it so serious is that we need about a trillion chips per year, so it is not like there is lots of spare capacity

The impact to date has seen Apple delay the launch of their latest phone, most of the major car makers, which are becoming more computational than mechanical, have noted they will see a drop in sales because they can’t secure enough chips to make the cars they otherwise could produce and sell.

The same applies to makers of game consoles, smart TVs and other consumer electronics that saw a spike in demand with global lockdowns.

What is a chip

A bunch of transistors that allow computations to be made electronically, the semiconductor transistor was the key breakthrough in the 60s and over time the ability to reduce their size and so increase the number placed on a chip has seen the stunning rise in computing power that has become known as Moore’s law which was a prediction that processors would double in capacity every two years which for decades proved to be true.

As a consequence we now have chips in almost any electrical device but we are running up against a physical limitation to make them much smaller.

How it started

Smaller chips require new and very expensive manufacturing plants, we may produce lots of chips but they don’t generate the kind of margins that guarantee a multibillion dollar investment will not come with some financial risk and so the main manufacturers have not rushed to add a lot more capacity to current chip production and are slowly moving to the latest smaller production sizes.

At the start of the pandemic car manufacturers correctly realised that they would see a sharp decline in demand and so scaled back orders for chips. It was not ideal but as the factories faced a lockdown they had to cut production anyway.

Then sales started rising for consumer electronics as homes became offices and entertainment hubs eating up the chips that were still available, once the lockdowns began to ease the car makers saw a strong return while there was still a strong demand for other devices.

But that was not the end of it.

Who makes chips?

You may assume that there are many manufacturers of chips and considering how many we make you may be surprised that there are surprisingly few and the principal makers are not just a bit bigger than the others they are much bigger. Intel and Samsung are two names that are as well known as the devices they power, but the largest producer is a name you probably have not heard before - TSMC which stands for the Taiwan Semiconductor Manufacturing Company. If you own an Apple your chip was made by TSMC and if you have the latest Apple using the A14 bionic which has almost 12 billion transistors that are just 5 nm in size. A nanometre is one millionth of a millimetre which is a thousandth of a meter.

Bigger challenges

After considering how small a transistor is and how many get placed on a chip you can now understand why the metal-oxide transistor is the most manufactured item in human history, the count from the late 40s when they were first created till 2018 is an incredible 13 sextillion, you need 21 zeroes at the end of that number if you would like to write it out.

But there is a bigger issue to consider. Taiwan produces almost a quarter of the planet's chips with the US and China being the biggest innovators and consumers of its products. Both are in a battle to assert their authority over the best designs and controlling the supply.

Huawei is China’s leading maker which is part of why the US has been reluctant to use their products leaving Taiwan as a key supplier. China too sees Taiwan as part of China and gaining more control over the transistor market would be a major boost to their efforts to become the dominant economy.

Samsung is another massive supplier with Intel being the third of the really big manufacturers. Intel has not had the easiest time in the last 10 years with successive CEO’s missing opportunities to switch focus to mobile from PC based chips, This means business decisions begin to have political implications which not only affect which industries can get enough chips to make their products but also complicate how trade and foriegn policy gets affected.

The future

Even smaller chips are being designed and tested with transistors being reduced to just 2nm in the next 5 years, this while research continues on quantum computing and graphic processing units pack an incredible 54 billion transistors into their chips.

Solving the backlog

More factories will need to be built and they will need to take the issues of the pandemic global supply chain and geopolitical considerations into account. The issue is serious enough that the US President called a meeting with 20 major tech players in the US to talk about how to fix it. The new Intel CEO believes that more capacity will be the solution, but that the time to build the factories will see the shortage last for a few more years.

If you ever needed an example to demonstrate that despite some growing nationalist concerns the world is a global village then a minute piece of silicon has shown that when the chips are down, we are all in this together.

14 April 2021 7:15 PM

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