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From UPSC perspective, the following things are important :

Prelims level: NA

Mains level: Semiconductor industry

CEOs of AMD, Nvidia and Intel have said at different forums last year that the chip situation will remain tight for the rest of 2022.

After reaching its peak in 2011, the laptop market growth slowed down with the rise of alternatives such as smartphones and tablets.
Then, the pandemic hit.
People switched to work from home, children connected to schools through laptops, and get-togethers happened over video calls.
This shift led to a surge in demand for laptops and tablets.
The stay-at-home rules also made several people pick up console-based learning and gaming.
Each of these devices were in high demand and are run on thumbnail-sized semiconductors, performing various functions on a single device.

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Manufacturers produce them as 200mm or 300mm wafers. These are further split into lots of tiny chips.
While the larger wafers are expensive and mostly used for advanced equipment, the devices that were in high demand needed smaller diameter wafers.
But the manufacturing equipment needed to make them were in short supply even before the pandemic began.
Industry is moving in the direction of 5G and advanced communication, which requires expensive wafers.
High consumer demand for low-end products, coupled with large orders from tech firms chocked chip makers whose factories were also closed during lockdowns.
As the industry gradually tried to pull itself out of the supply crunch, and logistical complexities have exacerbated the problem.

Separately, Russia’s invasion of Ukraine has strained exports of essential commodities used to make chip sets.
Moscow supplies rare materials like palladium, and Kyiv sells rare gases to make semiconductor fab lasers.
This combination is required to build chipsets that power a range of devices, from automobiles to smartphones.

About a decade and half back, semiconductors barely drew attention from large companies that have now come to rely on the thumbnail-sized semiconductor piece.
During this period, firms developed a system to make chip sets.
The system was made by interconnecting several parts of the world to make a single device.
It is what we now call as the global supply chain.

Semiconductor manufacturing involves roughly 25 countries in the direct supply chain, and 23 countries in allied functions, according to a joint study by Global Semiconductor Alliance and Accenture.
The report estimates a semiconductor-based product could cross international borders about 70 times before finally making it to the end customer.
Wafer fabrication is the most globally dispersed, with 39 countries directly involved in the supply chain and 34 involved in allied activity.
They provide services like photolithography, etching and cleaning.
Designing happens across 12 countries; product testing and manufacturing each are done across 25 countries.

Supply chain dynamics back fired due to the pandemic, and the recent geopolitical events.
When the pandemic began, carmakers stopped requesting chips from suppliers due to low demand for new vehicles.
And now, as they ramp up production to meet consumer demand, chip makers are down on supply because they have cut deals with other industries.
As the geopolitical events in Central Europe and production shutdowns in China continue to add pressure to the already complicated semiconductor supply chain.

Global Chip Shortage and Related Issues

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