The semiconductor shortage in the United States is real, ongoing, and painful for the economy. Beginning in early 2020, the shortage is predicted to last at least through the first half of this year, with some experts expecting it to stretch into 2023.
But what does something as esoteric as a semiconductor chip shortage have to do with the average consumer and internet connectivity? The short answer: These chips are used in broadband network equipment and in the modems, routers, and network devices found in our home to enable seamless broadband connectivity. In fact, it takes an estimated 7,000 chips embedded in servers, switches, and more for an internet service provider to bring broadband to just one household! In other words, a shortage of chips could mean a delay in expanding broadband access across America.
What’s causing the semiconductor shortage—and what is being done about it? Follow along to learn four reasons why the shortage is happening, and how our country is responding.
Factors causing the semiconductor shortage
- COVID: One of the single most important factors fueling the semiconductor shortage has undoubtedly been the pandemic with the health crisis affecting the situation in a series of ways. First, sick workers forced chip manufacturers to close temporarily. Second, health and travel restrictions reduced production further. Third, supply-chain issues have delayed the shipping of chips that have been produced. And finally, quarantines and lockdowns caused a spike in demand for consumers and consoles—chip sales in May of 2021, for example, were 26% higher than the same period the year before.
- New technologies: Spurred by the growth of new technologies, the increase in demand for semiconductor chips has spilled over into other markets, as well. This includes smartphones and Internet of Things (IoT) applications but also has come from more traditional areas such as the automotive industry, in which a full 20% of the input costs for premium cars are now coming from semiconductor chips, up from just 4% a few years ago.
- Market concentration: Two companies alone—Samsung and TSMC, based in South Korea and Taiwan, respectively—produce nearly 70% of the world’s semiconductor chips. The United States, meanwhile, produces only about 10% of its chips. This makes the domestic market dependent on foreign suppliers—for both pricing and production. And this is not a simple problem to solve, as the semiconductor industry has steep barriers to entry, including a multi-billion-dollar upfront investment, a multiple-year lag time before production can begin, and the fact that chips quickly become obsolete.
- Weather and natural disasters: Sometimes it just comes down to weather and bad luck. The North American Cold Wave of 2021 hit Texas particularly hard, affecting Samsung facilities there. Then, in March, a fire at a Renesas Electronics chip plant in Japan knocked it off the grid for several months. Climate change, moreover, has made weather more unpredictable across the globe.
Solutions for the semiconductor shortage
Even when the latest wave of COVID recedes, the semiconductor shortage is unlikely to go away, with demand only expected to rise in the coming years. As a result, companies both in the U.S. and across the world are looking for new solutions. Intel recently announced a $20 billion investment to open a semiconductor production facility in Ohio, brining over 3,000 hi-tech jobs to the state. Samsung and TMSC are both investing to increase production capacity, and the U.S. government has responded with the CHIPS (Creating Helpful Incentives to Produce Semiconductors for America) Act, which would devote $52 billion to fund semiconductor research, design, and manufacturing. Passed by the Senate as part of a larger Innovation and Competition Act, the bill, if enacted, would be an important down payment on boosting domestic production.
As the government explores new ways to increase chip productivity, however, it’s important that it also gives equal chip access to all industries and to refrain from giving preferential treatment to one sector over another. With broadband being such an important service for millions of Americans to conduct everyday activities, curtailed access to these valuable chips could lead to a significant setback for consumers, jeopardizing the national priority of ensuring all Americans have access to fast and reliable internet service.
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