What is being done to solve the semiconductor shortage and how will it impact businesses in 2022?

Megan Bray March 23rd 2022 - 3 minute read

As expected, the global semiconductor shortage has bled into 2022 as production issues and supply chain constraints continue to see demand outstrip supply.

The semiconductor shortage had its origins in the Covid-19 pandemic, as the shift to working-from-home, as well as the clamour for games consoles and other electronics to keep us occupied whilst we were stuck inside, created unprecedented demand for products when rely on semiconductors.

Although the pandemic has mostly come to an end, there is still no end in sight for the semiconductor shortage.

Semiconductors are fundamental to many international industries, including automotive, consumer electronics, LED and lighting fixtures, and power.

As these remain the four sectors hit the hardest by the semiconductor shortage, it’s possible high demand for chip-reliant products, entwined with supply shortages, will drive up retail prices during 2022.

What is being done to solve the semiconductor shortage?

The EU recently outlined a €43 billion plan to alleviate the current shortage of chips in Europe.

Financed by both public and private funds, the EU has approved the European Chips Act. This has set the target of increasing the bloc’s global share of chip production from 9% to 20% over the course of next 8 years.

By 2030, the EU hopes to be a key creator of semiconductors due to the significance chips hold across a diverse range of industries.

During the announcement of the European Chips Act, President of the European Commission, Ursula von der Leyen, said:

‘You all know that the global shortage of chips has really slowed down our recovery.

‘We have seen that whole production lines came to a standstill, for example with cars. While the demand was increasing, we could not deliver as needed because of the lack of chips. So this European Chips Act comes absolutely at the right time.’

Not only would this ease Europe’s dependence on foreign made chips, but it would also provide the bloc with a stronger foot hold in an industry which is only going to become more lucrative in the future.

Likewise, the US has recently approved a similar law. The America COMPETES act has been approved by the house following the Senate’s China Competition Bill.

This will enable the US to rival China’s technological advancements, including its ability to create chips.

The bill is allocating $52 billion to the semiconductor industry to subsidise research and manufacturing.

The bill will also authorise an additional $190 billion to other US technology and research.

Nancy Pelosi, Speaker of the United States House of Representatives, believes it will ‘supercharge’ the investment in semiconductor manufacturing and research, and advance the US’ position in an otherwise China-dominated sector.

How will this impact 2022?

Although these laws have been passed, it’s unlikely Europe or the US will manage to close the gap between production and demand quickly. Therefore, China may maintain a dominating lead throughout the year with regards to semiconductor production.

Consumers are likely to feel the pressure as prices increase amid high demand and supply shortages, particularly following the pandemic, which has triggered a cost-of-living crisis in many countries.

Whilst the shortage is affecting many industries, the setback is not equal across the board: as the hardest hit industry, automotive production may slowdown throughout 2022. This is due to the newly-implemented rules surrounding modern vehicles.

In a bid to combat the current struggles, many vehicle companies are making changes to their production lines.

Skoda boss, Thomas Schäfer, said:

‘The Covid-19 pandemic and the shortage of semiconductors have significantly slowed down our growth.

‘We expect the semiconductor supply situation to gradually ease in the second half of the year. I am looking ahead with confidence.’

Skoda, Toyota and Jaguar Land Rover saw a dip in sales over the past year due to the chip shortage which hindered production.

A number of vehicle companies have sought to address the situation by altering their partnerships with chip manufacturers.

In December 2021, BMW signed a deal with Inova Semiconductors and Global Foundries to ensure a supply of ‘several million microchips per year.’

The Future of AI

As promises of an AI-led future becomes more uncertain amid the semiconductor shortage, some industries may look to swerve away from hardware solutions.

Unlike the hardware, ‘smart’ solution software has the potential to be implemented in a range of ‘smart’ devices, such as AI-powered cameras, speech and facial recognition.

Smart compression and compilation involves ‘pruning’ the unnecessary elements of a model without altering its capability or accuracy.

Looking ahead, it is possible that the semiconductor shortage may continue into 2023 due to high demand.

Though this doesn’t mean the future of certain AI products need to stall, it is likely to continue pressurising other semiconductor-dependent industries until the EU and US manage to bring an influx of chips into the market.

Written by
Megan Bray

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