Here’s why the global chip shortage could worsen in 2021 and affect smartphone sales
All over the world, electronic companies have been affected by the global chip shortage, and from all indications, this shortage is only going to worsen. Despite efforts by chip makers across the globe to meet up with the demand after the global pandemic for various reasons, the recent drought in Taiwan may worsen the situation according to reports from counterpoint research. Counterpoint research reported that the country, which is the hub for global semiconductor manufacturing, is currently going through the worst drought in 56 years due to an almost non-existent rainfall over the past year, as well as other factors that have adversely affected the supply of clean water.
The largest manufacturer of chips in the world is Taiwan, and the Taiwan semiconductor manufacturing company (TSMC) which is the chip manufacturer for almost all electronic companies in the world including tech Giant Qualcomm. TSMC dominates over 55% of the foundry share market according to counterpoint data, are the Taiwanese company such as United microelectronics corporation (UMC), corporate and power shape semiconductor (PSMC), and Vanguard international semiconductor (VIS) further pushes the market share controlled by the Taiwanese companies up to nearly 70%.
It may baffle a lot of people that the lack of water affects the manufacturing of semiconductors. However, the reason is that the manufacturing of semiconductors requires a sizable amount of pure water to avoid contamination of the electronic devices. In the process of adding wafers of semiconductors to a chip, the check needs to be rinsed with ultra-pure water (UPW) after every step. To run a single large Fab requires almost 4.8 million gallons of water, which is the cornerstone of Taiwan’s virtual monopoly on chip manufacturing.
According to observations by Counterpoint, the country gets an average of 7-9 typhoons annually, which accounts for a significant part of the country's water supply. However, in 2020 the country only had one typhoon, and as a result, is currently going through a water shortage.
The report by Counterpoint elaborated that Taiwan is topographically divided by the 3000 metre- high central mountain range. This mountain range separates Taiwan’s eastern and western parts. The northeast monsoon brings in the rain in autumn and winter. However, these rains are mostly concentrated in the eastern and northern catchment areas. This means areas like Draco will enjoy abundant rainfall. However, the rainfall offers limited help to the Central and Taiwan science parks. As a result, Taiwan's technology industry is faced with a water shortage problem in 2021. Consequently, this water shortage problem may seriously impact the global supply chain.
How does the chip shortage affect smartphones?
The most obvious impact the global chip shortage will have on smartphones is that semiconductors are the building blocks for the processes that run smartphones. Furthermore, semiconductors and chips are the building blocks for not just the processes of smartphones, but for different components of a smartphone as well, including components such as the RAM, storage, camera sensors, and the LCDs in some cases.
Basically, semiconductors are the core of every smartphone and as a result, a shortage that emanated in Taiwan will affect the production of processors and consequently the production of smartphones themselves. The short-term effects of this will be that companies will struggle to scale up their production to the existing demand which in recent times has been quite high.
A divide between supply and demand in a situation like this ultimately leads to a rise in the prices of electronic devices. It is not uncommon for price fluctuations to happen at the component level. However, semiconductor shortages can lead to price fluctuations across the board for all the components used in a smartphone.
If for instance, the price of a memory chip goes from $10 to $12, the companies can usually absorb the cost increase within the current market prices. However, in a situation such as this, the cost of memory chips, storage units and many other components of the smartphone could increase altogether. This will make sticking with the current prices of smartphones difficult for the company. The fact that smartphone manufacturers have been cutting margins for some time now only compounds the situation. With most smartphone manufacturers selling at an average of 10% margin, a price hike across the board will leave no room for the smartphone manufacturers to gain, and the manufacturers will have no choice, but to increase the price of the smartphones.Source