Columnist
John Campbell Economics & Business Editor, BBC Northern Ireland
Standing in Line BBC NI’s Economic & Business Editor, John Campbell, discusses the surge in demand for semiconductors and the political impacts.
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SMC is not a company which will be familiar to many consumers. Even some of the discerning readership of this publication may not know what it does. But it’s a business which is emblematic of the supply chain disruptions of these post-pandemic times. It also sounds a warning about how climate change and geopolitics could cause much more serious disruption. TSMC is the Taiwan Semiconductor Manufacturing Company and it is the world’s biggest contract manufacturer of computer chips. Those chips are inside all sorts of consumer products, from cars to iPhones. There’s a very good chance you use its products every day. Like lots of manufacturers it has seen very volatile demand from its customers as the pandemic did all sorts of strange things to economies. The global semiconductor market actually shrank a bit in 2019 but in early 2020 it took off. With much office work and education moving to the home, the demand for laptops, tablets and smartphones surged. The deployment of cloud systems also increased demand for high end server chips. With people stuck at home, games consoles and smart TVs were also sought after and this surge in demand has persisted. The US-based Semiconductor Industry Association (SIA) says worldwide sales of semiconductors hit $41.8bn in April 2021, a whopping 22% higher compared to April last year. Annual global sales are projected to increase by 19.7% this year and a further 8.8% in 2022. In a complex, capital intensive business like semiconductor manufacturing it is not easy to just turn on lots of extra capacity to address that demand. So some customers have to wait and it’s mainly the car industry
which is standing in line. At the start of the pandemic demand for cars fell so manufacturers cut back on their semiconductor orders; then when demand bounced back strongly, the car companies found themselves at the back of the queue behind the consumer electronics industry. This has had significant effect, with car manufacturers having to cut production and even temporarily close factories. In turn this is feeding through to increased demand and price rises for second-hand cars as consumers baulk at the prospect of long waits for new vehicles. A change in demand should go some way to easing this problem later this year and into next year. Official data already suggests that consumers are switching spending from chip-laden physical products into reopened services like hospitality. In the medium term, supply will also be addressed: TSMC said in April it plans to spend $100bn over the next three years to increase capacity at its factories. Work has already started on a new facility in the US. Its main rivals, Intel and Samsung, are also going to invest many billions. But this issue has highlighted is how dependent we all are on just a few large factories for such vital components. And there are other aspects of the TSMC story which should give us pause for thought. Aside from the pandemic-induced demand surge, TSMC has also been battling with a drought in Taiwan. The chip manufacturing process requires prodigious amount of water, so drought is bad news. TSMC says that while supplies are tight its contingency plans, which include trucking in tankers full of water, means production has not been impacted. But production was impacted in Texas, the centre of US chip
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