📱Mobile, Laptops to Get Cheaper?
For the last two years we have been hearing about a semiconductor shortage. But we may have now overcorrected this problem.
If you've been following the news or have even tried to buy a laptop or an electronic item in the last 2-3 years, you have already heard about the semiconductor crisis.
Thanks to the pandemic the supply of these chips had been jeopardized, causing major mayhem across the world.
After all, these small chips can stop the production of a $3 mn car.
But now after years of talking about how this crisis is ruining our lives, we finally could be leaving it behind and heading towards a whole new semiconductor problem.
⚡ The Semiconductor Crisis
Wondering how the semiconductor shortage started.
Due to bad planning and the pandemic (you can read about the crisis in detail here).
You see, the world's biggest companies like Apple, NVIDIA, and Intel design semiconductor chips.
But the actual chips are only produced by a select few companies like TSMC, Samsung, Global Foundries and more. Because setting up a plant is too expensive and complicated.
These companies are mainly set in Taiwan and South Korea and work on a "just in time" manufacturing basis.
This means that they supply chips to manufacturers as and when needed and not ahead of time. This helps companies save money on warehousing space, manage their cash flow better, and reduce wastage.
This obviously became a problem during the pandemic, leading to a shortage of these precious chips.
Which means a shortage of cars, smartphones and any electronic device that you can think of.
And this shortage was made worse by an increasing demand for electronic items due to work from home as well as revenge spending once the economy opened.
To keep up with this demand and not face a crisis again, lots of new developments have happened.
Firstly, a lot of companies shifted to a "just in case" model, meaning they began to hoard chips to be prepared for any shortages (which was set to continue till 2023), supply chain crisis and excess demands.
Secondly, a lot of countries including us realised the importance of these semiconductors and began setting up semiconductor factories back at home.
But now this hoarding and over production of chips may come back to bite us.
😲 The Semiconductor Glut
You see, another major reason for the shortage of semiconductor chips was that plants were making fewer chips because before the pandemic there wasn't much demand for them.
And now after learning the new lesson they're increasing the amount of chips they produce per month to 6.9 million. For comparison, TSMC alone produces only 20,000 chips per month right now.
Has this solved the problem then?
Well, no.
In fact, TSMC, the number one manufacturer of semiconductor chips claims that demand for its chips is still exceeding the supply. This is also because a supply chain crisis is still looming.
But another statement by TSMC hints that this massive production of semiconductors could cause a massive problem very soon.
TSMC has claimed that it is witnessing a slowdown in demand for consumer electronics goods like smartphones, laptops and speakers.
Why?
Because people are afraid that a recession is coming and are decreasing spending.
And with the hoarding of chips, boost in semiconductor manufacturing, the analysts project that soon there will be too many semiconductor chips in the world.
Especially because the semiconductor industry is cyclical in nature. Huh?
You see, semiconductors are always in need but their demand only ever rises when a new tech enters the world.
Since that has not happened yet and there are a lot of semiconductors already out there, we'll soon be seeing an excess of semiconductors in the market very soon.
This could be good news for us as mobile and laptops will get cheaper (because semiconductor prices will go down).
This could be disastrous not only for the existing semiconductor companies (the Philadelphia Semiconductor Index is already down by 35% on these fears) but also for us.
You see, India is investing massively in semiconductor plants and factories. In fact, India's first semiconductor plant is already underway.
The government is investing majorly in these plants and also providing benefits to companies setting up these factories.
But if demand goes down, these plants and factories will be in major trouble right from their inception: a factor which could cause them to shut down.
However, there is still time for these plants to begin manufacturing. If we can avoid a recession until then, and boost demand for electric vehicles, the semiconductor industry in India will see a massive boom.
Everything depends on the state of our economy, which is very unpredictable at the moment.
Guess we will have to wait and watch how this upcoming semiconductor problem plays out.
⚡In a line: Like most crises that we face, we have overcorrected the semiconductor shortage and may soon see a glut of semiconductors.
💡 Quick question: Will India's semiconductor industry be able to book under these circumstances.
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Demand in india has no stop and its always better to self reliant.....than to depend on other imports...