Opinion: Diversification in semiconductor manufacturing is welcome but we must not abandon global markets

February 24, 2021 // By Simon Beresford-Wylie
Opinion: Diversification in semiconductor manufacturing is welcome but we must not abandon global markets
While the laws of supply and demand will eventually bring order back to the semiconductor market, it is crucial that we learn from the disruption to be better prepared for future challenges, says Simon Beresford-Wylie, CEO of Imagination Technologies

No one in the semiconductor supply chain has been left unscathed by the ongoing severe shortages. Inevitably, some Imagination customers have been impacted, from consumer electronics and car manufacturers to chipmakers themselves. But while the laws of supply and demand will eventually bring order back to the market, it is crucial that we learn from the disruption to be better prepared for future challenges.

There is no mystery behind the shortages themselves. With semiconductor production schedules typically set well ahead of time, a global surge in demand for chip-reliant consumer electronics devices – including phones, games consoles and computers - during lockdowns, and an unexpected rebound in car sales, have made it difficult for chipmakers to keep up.

The crisis will gradually resolve itself as investments by chip manufacturers in increased capacity come online, and demand stabilises as we adjust to a new post-pandemic normal. But while the private sector must lead the response, there are steps governments across the world could take to ensure critical supply chains are more resilient in future. 

Manufacturing is currently concentrated in a small number of locations, which while beneficial for economies of scale leaves supplies vulnerable to bottlenecks and localised disruption. The unprecedented cold snap in Texas and its impact on the power grid, which halted production at several chip-producing factories, is a case in point.

To reduce vulnerability to such events, policymakers should encourage greater geographical distribution of production as a means of promoting supply chain diversification. This is already beginning to happen. In Europe, the EU is preparing to launch an industrial alliance on microelectronics and is reportedly seeking to increase local manufacturing capacity, with France and Germany leading the charge. In the US, the Biden administration is expected to shortly order a review of critical supply chains, including semiconductors. 

Next: Semiconductor investment 

Picture: 
Simon Beresford-Wylie, CEO of Imagination Technologies

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