Troubles in supply chains deepen global chip shortage (UPSC Current Affairs)

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Why in the news?

Recently, Toyota Corporation has apologised to its suppliers and customers a third time in less than two months for delay in manufacturing of new vehicles and changing production plans. The delay has been due to the shortage of semiconductor chips which are essential for automobile industries.

What are Semiconductor Chips?

• Semiconductor chips are chips made up of materials with conductivity that lies halfway between conductors and insulators. Pure elements, such as silicon or germanium, or compounds, such as gallium, arsenide, or cadmium selenide, can be used.

What is the significance of Semiconductor Chip?

• These are the fundamental components that act as the brain and heart of all modern electronics and information and communication technology goods.
• These chips are now found in modern autos, household appliances, and critical medical devices such as ECG machines.
• These semiconductor chips are one of the primary drivers of ICT (Information and Communication Technologies) development and one of the primary causes of the world's current flatness.
• Semiconductors are employed in essential infrastructures including communication and electricity transmission, which have national security concerns.
• With deeper integration into the global value chain, the semiconductor and display ecosystem will have a multiplier effect across different sectors of the economy.

What is the Nature of the Semiconductor Chip Industry?

• Chip production is a complicated, interwoven ecosystem with its own ups and downs.
• The chip-making process is split into two parts: front-end and back-end. Front-end operations include wafer manufacture and probing, whereas Back-end operations include assembly and test.
• The front-end and back-end processes are distributed around the world, resulting in a worldwide chip-making ecosystem. In the direct supply chain, there are about 25 nations involved, and there are another 23 countries involved in allied functions.
• A semiconductor-based product could travel 70 times across international borders before reaching the ultimate user.
• Wafers of 200mm or 300mm in diameter are used to make semiconductors. Larger wafers are more expensive and are generally employed in advanced equipment, but smaller diameter wafers are still in high demand in the automotive industry, computers, and other consumer electronics.

Why has there been a global shortage of semiconductor chips?

Chips or semiconductor devices are in low supply around the world. This is attributable to a variety of factors, including the following:

• As customer preferences switched from one electronic fad to the next, the sector experienced glutes and shortages.
• Even before COVID-19 Pandemic, semiconductor production equipment was in low supply. Because the industry was heading toward 5G and enhanced communication, which necessitated the use of costly wafers, this was the case.
• During the Covid-19-induced lockdowns, chip manufacture was also suspended.
• Work From Home: People began working from home as a result of the pandemic, children connected to schools via laptops, get-togethers were held via video conferences, and subscription-based mobile games were popular. This move resulted in a boom in demand for semiconductors in the manufacture of laptops and tablets.
• After Pandemic: Following the shutdown, the industry attempted to progressively alleviate the supply shortage, but they ran into increased logistical challenges. Global supply chains were thrown off.
• The chipmakers' Just-In-Time (JIT) approach became a liability. It allowed businesses to obtain inputs from vendors just when they were required. Due to low demand from the vehicle industry, chipmakers entered into agreements with other industries.
• COVID resurfacing in China 2022: Shutdown and plant closures in China, due to the recent COVID resurfacing in 2022, exacerbate the already difficult semiconductor supply chain.
• Geopolitical issues: Due to the Russian Invasion of Ukraine, in Central Europe, exports of critical materials used to produce chip sets have been hampered. For example, Moscow provides rare elements such as palladium, whereas Kyiv sells rare gasses used in semiconductor fab lasers.

What are the steps taken in the world ?

• The European Chips Act (45 billion euros) and the CHIPS for America Act ($52 billion) have been enacted by Europe and the United States, respectively. Certain policies would encourage fab makers to locate their operations in these areas, thereby balancing the market.
• By 2030, these two will have enabled semiconductor firms to invest equally in the East and West. Currently, 80 percent of the population lives in Asia, while 20 percent lives in Europe and the United States.
• Semiconductor Supply Chain Initiative under Quad: Each Quad member brings a unique set of skills to the supply chain. And this will be used to reform global supply chains for semiconductor chips
  • the United States: With a significant presence in semiconductor production, leader in semiconductor design.
  • Japan: In terms of specialised semiconductor production materials.
  • India: Well-known for its expertise in semiconductor design.
  • Australia: Rare earth elements, battery technology, and artificial intelligence

What are the initiatives India has taken ?

• India Semiconductor Mission: Government with the objective of building the overall semiconductor ecosystem and to catalyse India’s rapidly expanding electronics manufacturing and innovation ecosystem announced this mission with 4 sub schemes.
  • Scheme for setting up of Semiconductor Fabs in India
  • Scheme for setting up of Display Fabs in India
  • Scheme for setting up of Compound Semiconductors / Silicon Photonics / Sensors Fab and Semiconductor Assembly, Testing, Marking and Packaging (ATMP) / OSAT facilities in India
  • Design Linked Incentive (DLI) Scheme
• Production Linked Incentives Scheme: The Union Cabinet has approved a budget of Rs. 76,000 crore to help establish a'semiconductors and display manufacturing ecosystem.
• Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS): which will spend Rs 3,285 crore over eight years to promote the manufacturing of electronic components and semiconductors.
• Semicon India Summit 2022: The conference is designed to bring together key stakeholders to showcase existing capabilities, ideate innovations and discuss global best practices.