Everything You Need to Know About the Great Semiconductor Shortage

A series of manmade and natural disasters have led to a global chip storage, caused by supply chain profiteering.
Image: Feature China/Barcroft Media via Getty Images

Ice storms, factory fires, maritime disasters and earthquakes—over the last few weeks the semiconductor industry has been hit with a near-Biblical series of disasters, causing widespread product delays and worsening geopolitical tensions between the US and China. 


The semiconductor shortage has caused shift cuts at a Ford auto plant in Kansas and a General Motors plant in Brazil, has boosted an eBay scalpers market on the PlayStation 5 and high-end graphics cards, and has forced Samsung to cancel the latest version of the Galaxy Note phone. 

“We’re waiting for the locusts story to break,” jokes Phil Amsrud, a semiconductor industry analyst with the research firm IHS Markit, who recently co-authored a report on how the shortage was affecting the automotive industry. 

Collapses along the semiconductor supply chain and a sudden surge in demand for retail goods are also fueling anxieties over the US-China “chip war” and the increasing tech industry competition between the two countries. Along with vehicles and consumer electronics, semiconductors are now used in almost every industry and are particularly important for the military, as well as the telecommunications and AI industries. 


The current shortage was triggered by COVID-19-related production and shipping problems but has become increasingly dire over the past few months, as the list of whimsical disasters affecting the industry start to resemble a Wes Anderson montage sequence. “Unless you were in the tech industry, no one even knew what a semiconductor was two years ago. And now it's on the cover of the Bloomberg and The Wall Street Journal,” said Jon Bathgate, an investor with NZS Capital who specialises in the semiconductor industry.

In Texas, a winter storm and the subsequent electrical grid failure led to Samsung, NXP, and Infineon, three major semiconductor chip makers that run large factories in the state, to temporarily shut down manufacturing. Meanwhile in Japan, an equipment fire at the Renesas semiconductor factory is still under investigation and expected to cause delays of at least three months. 

The semiconductor shortage and the havoc it has caused signal deeper problems with our fragile supply chains and “just-in-time” logistics. 

“What you get is stories that are like the storm in Austin, or mishaps with shipping, when really all of these Biblical disasters are united by a longer story of industrial production,” Charmaine Chua, a professor at UC Santa Barbara, said. “It relies on the consistent depression of wages and the consistent search for cheaper markets.”


A globalised and deeply interdependent semiconductor supply chain means that neither the US nor China has control of the advanced semiconductor industry needed to meet demand, particularly as trade sanctions have made it harder for the supply chains to run smoothly. 

Amid the shortage, politicians have started a race for chip dominance and independence.

“This is about out-competing China,” US Commerce Commerce Secretary Gina Raimondo said bluntly earlier this month following the announcement that the latest White House infrastructure plan would include $50 billion for the American semiconductor industry. In February, the European Union released a plan to double its semiconductor output. China, for its part, has just issued a major tax break to chipmakers in an effort to ramp up production. 

The production issues have put more pressure on Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest semiconductor producer, and the company which remains at the centre of the geopolitical turmoil. The Taiwanese company manufactures chips used in iPhones, F-35 striker jets, and Amazon’s cloud computing systems. as well as having a massive market share, accounting for 54 percent of total chip manufacturing revenue worldwide.


The company has its own problems as well. Taiwan is facing its worst drought in more than a half century; truckloads of water have been shipped into TSMC’s factories in the hope of preventing further chip delays.

At just three nanometres thick, TSMC produces the most advanced semiconductors in the world. Both the US and Chinese tech industries rely heavily on TSMC’s cutting edge chip fabrication. TSMC pioneered a “foundry and fabless” production model in the late 1980s, which separated the design of semiconductors from their manufacturing. This allowed tech companies to design chips without having to actually manufacture them. 

“Over time the business model has become popular because of the idea that you can just focus on designing your semiconductors, while leaving companies like TSMC to actually make them,” said Ming-chin Monique Chu, a professor at the University of Southampton whose work focuses on Taiwan and the global semiconductor industry.  

TSMC’s dominance in the sector has put them in a difficult spot. China regards Taiwan as part of its territory, and has threatened to invade the country.


Former president Donald Trump’s decision to blacklist Chinese tech company Huawei also prevented TSMC from working with the company, which was a major client. The former White House administration also pressured TSMC to bring manufacturing capacity over to the US, with TSMC recently announcing plans to open a large fab in Arizona. 

The foundry and fabless model have also contributed to an incredibly complex supply chain—a single chip may have design sent from the US, manufacturing provided in Taiwan, silicon wafer parts imported from Germany, equipment from South Korea or the Netherlands, and chemicals sourced from Japan, before finally being packaging in China. 

According to Chua, who works on globalisation and trans-Pacific trade at UC Santa Barbara, these intricate supply chains depend on what’s called “pull production,” where companies predict the amount of demand and then aim to carry the least amount of stock in order to optimise efficiency and profits. 

In short,, the semiconductor shortage may be less an act of God and more the result of supply chain profiteering. “The choke point is not just, say the Suez Canal, but is actually the reliance on supply chains and [the idea of] continued availability,” says Chua. 


The automotive industry—long seen as an iconic American industry associated with industrial decline—has been hit particularly bad by the chip delays. Ford has cut shifts at the Louisville plant that manufactures its F-150 truck. GM announced that some trucks would be only partially assembled while waiting for semiconductors to arrive. Stellantis, (formerly Fiat Chrysler), has seen delays with its Ram pickups. Tesla also temporarily suspended production of its Model 3 earlier this year due to the shortage.

“It didn't take long before the industry realized that with a tight constraint on processors, there really was no graceful exit to this,” says Amsrud, the analyst with IHS Markit.

“At its core, this is an issue that demonstrates the need not to offshore American jobs and to bring back production of semiconductors and other auto supply parts to U.S. workers where as a nation we have more ability to respond to these demand issues,” the United Auto Workers union said in a statement.

Bathgate, the investor with NZS Capital, says that while the semiconductors used in vehicles don’t tend to be as complex as those used in iPhones, automakers require a large number of chips to deal with what are often relatively minute vehicle functions. “It's a microcontroller that costs like $1 to produce and does your windshield wipers or adjusts your seat. It's stuff that's not that complicated,” Bathgate said.

TSMC told Motherboard that the company was doing what it could to prioritise automakers. “TSMC is reallocating our capacity to support the worldwide automotive industry,” said Nina Kao, deputy spokesperson at the company.

In response to pressures on the US auto industry, the Biden administration has taken a more forceful stance on China and semiconductor competition. Many experts have noted that President Biden’s approach to China and economic issues has not been all that different from Trump’s. Chua says that both the Biden and Trump administration have taken a hawkish approach to China, while placing an emphasis on the creation of a domestic semiconductor industry. 

In late March, Intel helped to shore up that vision with an announcement that it would be developing semiconductor manufacturing capabilities and investing in two large factories set to be built in the Arizona desert. 

Josh Gabert-Doyon is London-based writer and radio producer focused on tech, labour, and culture. He tweets at @JoshGD