Global chip shortage: How microchips became one of the worlds most precious resources

[Music] consumer electronics cars medical devices planes smart appliances their common component chips you don't buy them directly but trust me you need them so when the silicon chips are down what happens well we're finding out the auto sector has been hit hard with car companies around the world pulling the brakes on production although they're not the only ones makers of gadgets and popular electronics are feeling it too the chip shortfall is also feeding into existing international relations issues and demand linked to future uses doesn't really look like it's about to slow okay so maybe that last bit is a bit tangential but you get the picture the chip shortage could be why you're having a hard time finding a ps5 or a flex fan passat about one trillion chips are made a year that's about 128 for every person on the planet suffice to say the world runs on chips semiconductors so why are we coming up short the many factors contribute to the chip shortage that we see today the cobit 19 pandemic plays a significant role the pandemic changed consumer behaviors we're buying personal computers new phones new tablets xboxes so we can work from home and to cope with the lockdowns and companies upgrading their digital infrastructure to enable remote working and all these purchases are driving up the demand for chips at the beginning of pandemic we have estimated an economic downturn industries such as the automakers they slash the chip purchases and but the economy in east asia bounced back sooner than expected with more demands for cars car makers keep limited inventory so right now they are buying buying buying as the corona virus crisis reshaped supply and demand chip companies are scrambling and if there's an industry that can't simply quickly ramp up production or ask its clients to do without its products for a while or shift its manufacturing elsewhere rapidly it's the chip industry supply chains have been spread across countries as the cost of communication has gone down along with you know the cost of transportation so this was largely seen as a good thing to spread the production of semiconductors out of their high-tech components across countries you know kind of based on some sort of fundamental theories of economics and that by doing so you could reduce the cost of production thereby increasing efficiency but in the past several years as concerns over technology and you know technological sovereignty have grown um this has been coming to be viewed as a geopolitical risk rather than you know economic benefit hold that thought geopolitical complexity is going to figure in this so let's run through the basics one every country in the world needs chips two chips are complicated to produce and three because the world economy runs on chips who makes them and who is able to buy them goes a long way towards defining who stagnates and who progresses one expert likens it to one other commodity that's seen its own share of geopolitical contentiousness relates to the district they are as they've been called the new oil in the digital age everything from your phone to your air conditioning and everything in between of course uses chips and of course as technology becomes more central chips become more important and most importantly the ability to manufacture smaller and smaller chips that can do more is is absolutely critical talking about smaller and smaller chips that can do more makes it a good time to introduce this guy gordon moore co-founder of american chip champion intel in 1965 he said that the number of transistors the active component of chips that could fit onto one chip would double every two years or so meaning computers can be expected to double their efficiency in that time as costs fall by half it's not really a law but it is kind of a guiding principle increasing power but decreasing size you've probably felt that happening that's how we went from this to this as next generation super fast 5g connectivity becomes more common the internet of things continues to expand and ai powered tech improves the appetite for increasingly powerful chips of various kinds is going to grow accordingly and the more powerful chips become the more specialized their manufacturer and the fewer the producers that are able to do it here are the so-called big three of chips producers intel from the us samsung from south korea and tsmc from taiwan they're considered companies at the industry's leading edge meaning they can make the world most advanced chips they're not the same kinds of companies samsung and intel are what you would call integrated device manufacturers meaning they can design manufacture and sell the chips from start to finish tsmc is what you would call a foundry meaning they make chips for companies without factories themselves or fabs as they're known in industry parlance those fabs by the way become more expensive with each generation of chip the cost to build a facility with five nanometer production lines is at least 5.4 billion dollars according to consulting firm mckinsey one example of that five nanometer chip is the a14 bionic apple says it's the fastest available chip on a smartphone and it's found in the iphone 12. those chips are made by tsmc it might not be a household name to most consumers the way apple is but apple couldn't have done it all without tsmc for that matter neither could apple competitors like chinese tech giant huawei now tsmc and its home country taiwan is in a unique position this is all part of the geopolitical complexity we were talking about earlier so here you have this hugely important industry located in taiwan and taiwan of course is you know right in the center of this of geopolitical struggle the communist party now make no clams about saying that taiwan is an ineligible part of china that is only waiting for reunification they whether they have they don't have a publicly stated timetable per se but they make no qualms about it they have not renounced violence to reunify the country as they see it and so in taiwan you could certainly be see as being a very real flashpoint really whether or not china successfully invaded taiwan it was like almost guaranteed that the semiconductor industry and you know the global supply chains would be disrupted by this there's also some concerns that if successful that china would take over taiwan's manufacturing industry or the semiconductor industry and because of taiwan's critical role in the manufacture of these chips that could be relatively problematic for the companies that use tsnc to taiwan so there's some discussions that if china did take over tsmc that china could put members of the chinese communist party on the board or you know exert other influence through other ways chips being as important as they are they figure prominently in the often intertwined discussion of security and technological advancement just think of the u.s coming up with its special kind of list an entity list that places companies and persons for the for behaviors contrary to u.s national security interests and foreign policy interests so let's say human rights violation will account for one ip theft will be another one and one notable company you may have heard is the chinese telecom giant huawei in the summer of 2020 the u.s also places lists of chinese and russian military end users to the entity list so china's smick the short for semiconductor manufacturing international corporation also made it onto the list because of its ties with the pla by this point u.s mid-chips are essentially off-limits to china incidentally this also contributed to the massive chip shortage we were talking about earlier when smick got blacklisted by the u.s that meant it couldn't purchase advanced manufacturing gear from the united states so the sanctions prompted some of mixed chip buyers to shift their orders to tsmc thereby helping to create a bottleneck china had also been stockpiling chips from elsewhere in order to circumvent u.s sanctions now its ambitions to become the world leader in tech are well established and semiconductors are a key part of that the restrictions are a threat to that plan but china has been building its own strategy so china has worked for several decades to develop its semiconductor industry it has poured money into this but really the past several years this drive has been accelerated as china's vulnerabilities in semiconductors has been made so clear by u.s sanctions we see this by companies like huawei pouring money into chinese startups and other semiconductor companies across the industrial value chain but it really remains seen whether or not china and you know the chinese companies will be successful at doing this so they're starting from uh from certainly a a backward position and then they've got a lot of ground to make up and they also are now entering a pace a phase where there simply isn't the trust that is there chip design relies on a whole slew of components and inputs from global chains of engineers and companies and that's a chain of trust which china is simply outside at the moment so it's going to be very difficult to simply say in five years we're going to bleeding design companies you can look across a number of industries in china whether it be you know high-tech industries difficult industries like airline commercial airlines china's been trying to do that for 30 years with very little success for the size of its economy it may demand great things it may put them in the plan there may be political imperatives but it takes a lot of work to get there and there is no certainty they're going to get there from where they are today so once again in broad strokes the us and china both want to be the tech superpower the us has accused china among other things of intellectual property theft and of human rights violations and has blocked certain chinese companies from accessing u.s technology china is spending billions in order to be able to decrease its dependence on tech imports thereby also reducing its vulnerability to sanctions put in place in part to punish aggression and deter future belligerence like say towards taiwan and that's why chips are the new economic security and geopolitical flashpoint the question is what should be done i think much of the well the ideas behind some of the us policy were correct i think the implementation was pure and certainly the global coordination was poor and i think that's something that needs to be addressed and again how do we use these whether it is sanctions or how we use this leverage and a positive way to actually get better outcomes it is and then that's what's been missing in much of the us policy a successful policy needs balance business interests and also national security concerns and an ideal approach will be floor lateral with like-minded countries instituting similar policies at the same time as it so often is the answer is working together whatever global challenge is coming up be it the next pandemic climate change food security technology and therefore chips are going to play an outsized role it's in all countries interest to ensure a dependable supply investing in research and development and manufacturing closer to home having more and varied suppliers and making the supply chain shorter are key and while semiconductors are a source of political sensitivity they're also a reminder of an interlinked interdependent global economy so when the chips are down it's a good time for countries of the world to think of how they can get it back up in cooperation

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Length: 13min 13sec (793 seconds)

Published: Sat Feb 20 2021