Did you know that we are currently facing a global chips shortage? The crisis came about due to the massive demand for electronic components triggered by the pandemic, factories downtime, production underestimation, and supply chain failure. Whoever produces the chips, holds all the power – in this case the Taiwanese manufacturer TSMC seems to be a ruler.
The company Taiwan Semiconductor Manufacturing Co may seem unfamiliar to you, but it is more than sure that their products are used by you every single day. TSMC is the world’s largest chip manufacturer that produces parts for major electronics and automotive companies, including Apple (which is reckoned to constitute 25% of TSMC’s income ).
Chips are not only a common component of consumer electronics such as smartphones, computers, or smart appliances, but they are also required for automotive electronic systems, which are expected to account for more than 50% of the total production cost of a car by 2030. For comparison, in 2010 this figure comprised 35% while in the 1970s, 5%. New cars need more processors, which in other words means – more and more chips.
In fact, it is the automotive industry that has been inflicted the most during the last months. Major players on the market such as Volkswagen, Toyota, Renault, General Motors, and Honda had been forced to hold back production due to the lack of components. A shortage in the microprocessor industry is expected to slash Ford’s profit by $2.5 billion this year and GM’s profit by $2 billion.
The crisis has also hit the electronics industry. Sony has announced that it is unable to manufacture the number of PS5 consoles planned for this year, just like Samsung which in turn postponed the release of its new version of the Galaxy Note smartphone. All this because of chips shortage. But how did such situation even come about?
During the outbreak of the pandemic, many companies decided to cancel chip orders due to a significant drop in demand for products such as cars. It was assumed that the demand would not increase quickly. In response to the situation, chip manufacturers decided to change their sales orientation to other industries. At a time when demand picked up again, motor companies were left holding the bag as microprocessor manufacturers had their hands already full with other orders. Another aspect is also the production bottleneck which lead to the supply chain destabilization. The global production of chips is based on 3-4 companies only, including the afore-mentioned TSMC, which is responsible for about 70% world’s production of technologically advanced microprocessors.
TMSC’s goal is to maintain its position and increase its production capacity. For this purpose, the company announced an investment of $100 billion. It is worth mentioning however, that the reliance of global electronics behemoths on the goods of a single Taiwanese firm is an example of the negative consequences of excessive production outsourcing.