THE SEMICONDUCTOR CRISIS

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THE SEMICONDUCTOR CRISIS

The semiconductor supply chain has been in the news for quite some time for the delays, emanating out of a large number of factors connected to the pandemic. The varieties of industries, employment and economic activity being impacted by it can throw any country out of gear. Over the last one year or so, the world has become accustomed to semiconductor shortage of different time durations depending the geography you are in and  large factors which are playing around even the most well-established supply chains. It seems to have been broken and will take quite some time to get back to its original operation. The other danger now is that is can get broken in future as well.

For the first time we are hearing of the semiconductor manufacturing in India the push being provided by the govt and likely funds to follow gives us a very clear cut idea of what is in store for us, if manufacturing does not happen in India. On the other side of globe, things are moving towards a completely precarious situation with fear of putting economic activity into disarray. The condition as it stands as it today is that the semiconductor supply chain is able to provide an inventory of only five days. The Commerce department is making the sense of urgency clear to the decision makers. The chip inventory held by manufacturers including automotive or medical device manufacturers have fallen from 40 days in 2019 to less than 5 days in 2021.

The approach taken gives us an idea that it does not seem to be a temporary phenomenon. The US government has urged the Congress to approve a $52 billion plan to enhance domestic chip production. It is a doomsday scenario. As Commerce department says, ‘If a COVID outbreak, a natural disaster, or political instability disrupts a foreign semiconductor facility for even just  a few weeks, it has the potential to shut down a manufacturing facility in the US., putting American workers and their families at risk.” The fragility of the semiconductor supply is out there in the open. It was supposed to be robust till the onset of the pandemic. That is how the world had developed in recent decades to keep production where it can produced at the lowest price for the world market.

The myth of this economic model has been busted. The dangers as it stands today clearly outweighs the benefits. It is thus essential that the Congress pass chips funding as soon as possible. The manufacturing facilities have already reached the maximum. The demand is skyrocketing. As per the Commerce Department the demand for semiconductors went up 17% in 2021 compared to the 2019. Bottlenecks are most concentrated in specific semiconductor inputs and applications. Some of them are legacy logic chips (automobiles, medical devices etc), analog chips (power management, image sensors, radio frequency) and optoelectronics chips (sensors, switches). Rebuilding domestic manufacturing capabilities is the only answer. Ditto for India. It has to be hastened.

STRATEGIC MANUFACTURING IS THE KEY TO KEEPING  CRITICAL ECONOMIC ACTIVITIES AFLOAT.

Sanjay Sahay

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