What is the chip shortage?

An image of surface mounted chips demonstrating the ongoing chip shortage

We all hear about the chip shortage and how it is getting worse. So what is the chip shortage and how did it come about? Let’s delve into the murky world of chip manufacturing and find out in this blog post.

Leading and trailing edge

Consider two cars, the first is the Tesla model X and the second is the VW Polo. Two different vehicles for two different markets.

The Tesla is packed with the most modern technology as it is aimed at a market with loads of money to spend on the luxury car. The VW Polo on the other hand is cheap and easy to manufacture and is sold for a lot less, but they make a lot of them.

The same goes with the integrated circuit world.

Leading edge

This is where the money is made and where the equipment to make it is the most expensive. Currently, the drive is to create thinner and thinner silicon wafers, because thinner wafers have much greater potential for the market.

Silicon is a semiconductor, which sits halfway between a conductor and an insulator. A transistor is like a switch, and in order to switch they need energy, and that energy is converted to heat. So creating a thinner die means that there is less energy required to switch the transistors and therefore less heat generated. It also means they can pack more transistors next to each other and even shrink the size of the chip down.

So thinner wafers equal more energy efficiency, so mobile devices can run longer on smaller batteries, laptops can run longer and desktops don’t require so much power to run to do the same amount of work, or require the same amount of power to do more work.

Trailing edge

Conversely, there is a market for cheap components that don’t need to switch as fast as a microprocessor so these go into creating trailing edge chips.

Once a design has been created, it will be churned out at mass market scale, and that is how we get all the supporting components that work with our microprocessors.

The pandemic

The trailing edge market barely makes a profit for the manufacturer at the best of times, so during the pandemic, the companies that buy from these manufacturers slashed orders, and that meant the manufacturers had to stop production.

However, when these companies burnt through their glut of components the manufacturing companies were still suffering from the pandemic and couldn’t keep up with demand.

Factory fires

Another huge problem for the trailing edge market was from factory fires, which destroyed the equipment needed to make these components. This further hampered the ability to fill the demand for trailing edge components.

Water shortages

Water is a precious commodity, and in the microchip industry the water has to be of a specific grade to be used for making components and with climate change affecting the ability to source enough water to feed the people in Taiwan, then rationing severely affects production.

Exit strategies

The only way I can see the exit strategy playing out is if there is a levelling of the playing field, where trailing edge components become considerably more expensive and be made on the leading edge equipment, which means less silicon and smaller packages for higher costs.

Building facilities takes years and is not cost effective currently, unless those facilities can do both leading and trailing edge technologies in the same facility, so one offsets the other.

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