Well, a simple explanation! Chips are present in almost everything we use today. Chips are present in our computers, telephones, televisions, cars; they allow us to make purchases with our credit cards and power our game stations, etc. As the chart below shows, semiconductor chip applications affect almost every aspect of our existence.
What is the mystery behind global scarcity?
The global chip shortage is mainly due to the Covid 19 pandemic when many companies withdrew their orders for semiconductor chips in anticipation of the expected economic slowdown due to a prolonged and intermittent lockdown. But when governments around the world ordered people to stay at home, it created a new kind of crisis for the industry, as orders for online products soared, whether it's buying home office computers, computer equipment. gymnastics to keep in shape, electronics and games to entertain during the lockout period with the pandemic accelerating the pace of scanning. Once the industry realized that the slowdown in demand was only temporary, it also had to deal with what was then apparently a “MINI” problem if there wasn't enough energy. chips to support new orders.
An overview of the chip manufacturing industry reveals that the world produces nearly trillions of chips each year, and there aren't many companies in the world that produce chips. There are about 3000 steps and very specialized machines are needed to make chips. Chipmakers also need to use a lot of ultra-pure water to clean factories: TSMC's Taiwanese plant alone used more than 63 tonnes of water a day in 2019, representing more than 10% of the supply from two local reservoirs. So it's not surprising that, in 2021, Taiwan experienced its worst drought in more than 50 years, the situation became even bleaker for the chip industry. In Japan, a huge fire broke out at the Renesas Electronics Naka factory and destroyed much of the building that makes mini-controllers for each car; in fact, it was a cruel blow to the global auto industry. The time between ordering semiconductors and delivery increased to a record 18 weeks. Short-term chip shortages are putting the auto industry out of shape, forcing it to shut down and costing billions of dollars in lost production and sales. The world's biggest automaker, General Motors, has said they could lose up to $2 billion if a shortage of chips forces temporary closures at some of their plants. Globally, the global auto industry is estimated to produce four million fewer vehicles than expected and lose about $110 billion in sales.
For someone looking to buy one of their favorite devices, the wait can be terribly long. Until then, we may need to keep our purchasing and delivery expectations low and allow shortages and supply chain bottlenecks to gradually subside.
In the meantime, if you're an investor and want to dive into semiconductor stocks, here are two quality semiconductor ETFs that might be worth considering:
iShares Semiconductor ETF NASDAQ: SOXX - This ETF contains 30 chip companies
VanEck Semiconductor ETF Vectors NASDAQ: SMH - This fund owns 25 shares of semiconductor chip companies around the world.
However, it should be noted that the performance of semiconductor stocks can be tricky as earnings can be very volatile. Therefore, you must be very patient when investing in semiconductor stocks. In the long run, as demand for semiconductor chips continues to increase over time, investing in this industry can be very profitable.