Semiconductor chips are so ubiquitous in everyday objects that it can be difficult to appreciate just how important they have become. Take cell phones, for example, Broadband wireless services have made money and mortgage transactions available 24/7, yet supply constraints of semiconductor chips have plagued the rollout. This has a direct impact on its prices even though you may not have known about it. Unlike gold where you can just search up today’s gold rate in Guntur or for any other city you can’t really track the price of semiconductors so easily. See more. It is however, important as a consumer to understand the factors that affect the prices of these semiconductors because indirectly they affect your life everytime you buy something with a semi conductor in it.
Supply and demand
Computer chips are as scarce as gold. The price of both is rising and the supply chain has been disrupted. There is a global computer chip shortage, but it’s not entirely clear what is causing it.
The shortage seems to have several causes. The first is a demand shock linked to Covid-19. Consumers can’t spend on things like restaurants and travel, but their expenditure and consumer electronics has increased. This in turn has increased the demand and consumption of semiconductors which is a key component in the development of these electronics.
When the pandemic struck last year, many companies decided to stop ordering components as they struggled to sell anything. When demand began to recover in the third quarter of last year, there was a rush to buy silicon again, but the plants were not ready to produce them in such large quantities within such a short time frame.
This combination of events has led to two problems: one in availability and one in pricing. Companies are facing difficulties producing their products because parts are missing from their supply chains. And when they do manage to secure parts, they pay much more than they used to for them. Hence, just like in the case of gold, if the supply chain is disturbed it affects gold rate today in Bhimavaram or Chennai, similarly if the supply of semiconductors is decreased it will increase your expenses.
The global shortage has been caused by bottlenecks at every stage of production, from raw materials to finished components. Foundries such as TSMC are operating at full capacity. They are hampered by shortages of the chemicals needed to etch circuits on silicon wafers, as well as by constraints on the power supplies required for their cutting-edge production lines. These lines use equipment that takes up entire rooms and requires massive amounts of electricity. TSMC expects to spend $28bn on new capacity this year—and it still may not be enough.
The shortage is also due to a lack of capacity planning and investment in semiconductor fabs by carmakers and their suppliers. The high cost and uncertain return on investment mean it isn’t commercially viable for carmakers to build their fabs. But even if they did, they would be unable to compete with consumer electronics firms such as Samsung and Apple on price. The main driver for building new fabs is lower costs per transistor rather than higher performance chips, which makes it more attractive for consumer electronics manufacturers to invest.