CHIP SHORTAGE NEWS The global semiconductor crisis: A review of Q2 2024

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The global chip shortage has been an urgent matter for some time now. But what has happend since than and what is the current situation? In this article you will find out what's been going on in the second quarter of 2024. Let’s take a look at some of the main developments.

Semiconductors are the building blocks of modern technology, forming the foundations for everything from simple electronics to electric vehicles. When the pandemic hit in 2020, however, it sent the entire industry into a flurry as supply chains were suddenly disrupted and consumer demands shifted.

This led to what was a very turbulent few years between 2020 and 2022 where supply constraints consistently hit automotive and electronics manufacturers, causing significant production bottlenecks and cutbacks. This was especially problematic for the automotive sector where manufacturers worldwide struggled to meet demand for new vehicles due to a lack of chips for safety-critical systems.

In the last year, however, things have begun to stabilise. There was a market rebound in late 2023 and although the outlook is still challenging, positive signs are pointing towards the end of the shortage. In many ways, it’s already over.

Global semiconductor sales increase

In early June, the Semiconductor Industry Association announced that global semiconductor industry sales were $46.4 billion during April 2024, representing an increase of 15.8 % compared to the April 2023 total of $40.1 billion and 1.1 % more than the March 2024 total of $45.9 billion. Additionally, a newly released WSTS industry forecast projects annual global sales increases of 16.0 % in 2024 and 12.5 % in 2025.

CHIP SHORTAGE NEWS

The Global Semiconductor Crisis: A Review of Q1 2024

These strong sales figures have been made possible by significant improvements in production, echoing the commitments made to increase semiconductor production by both governments and the private sector. On the government side, a wave of legislative activity is strengthening domestic chip production capabilities in economies including the U.S., European Union, and Japan. Landmark bills like the European Chips Act and the U.S. CHIPS Act share common goals to increase chip production, invest in research and development to propel innovation and enable collaboration between public and private sectors.

It's important to keep in mind that these efforts are taking place against a backdrop of rising geopolitical tensions. For example, the ongoing effort by the U.S. to stifle China’s domestic chipmaking could pose potential supply chain risks. Meanwhile, the ongoing war in Ukraine and a potential war in Taiwan could limit access to critical materials. Despite these difficulties, all signs point towards a diversified future where domestic industries bolster chip manufacturing. This will go a long way in preventing any future shortages.

Private investment and industry adaptations

In terms of private sector efforts to ease the shortage, there has been a wave of record-breaking investments and innovations that are pointing towards a brighter future. Samsung recently announced a US $230 billion investment into chip production over the next decade, with a significant portion of that dedicated to expanding capacity.

It’s important to keep in mind that while investments like this are great news, chip production is a capital-intensive effort that requires a highly skilled workforce. It can therefore take years for a meaningful increase in production to materialize following capital investment. So, while the tide is turning, it’s a slow process. This is reflected by lead times - the period between a chip being ordered and delivered - which are falling in some sectors, illustrating that foundries are catching up with demand.

Additionally, many industries are actively adapting to the shortage. In the automotive industry, for example, the concept of chip redesign is being explored. Manufacturers are also finding ways to keep assembly lines running by using more readily available components. AI is also adapting, with cloud-based processing enabling chip limitations to be bypassed.

Global semiconductor fab capacity growing

Global semiconductor fab capacity is also growing, indicating that these collective efforts are paying off. Capacity is projected to expand by 6 % in 2024 and 7 % in 2025, reaching an unprecedented 33.7 million wafers per month (8-inch equivalent), driven by the growing demand for chips, particularly for AI applications.

Leading-edge capacity for advanced nodes (5nm and below) is set to grow by 13 % in 2024, with major players like Intel, Samsung, and TSMC beginning production of 2nm Gate-All-Around (GAA) chips, aiming for a 17 % increase in 2025. This surge is attributed to the proliferation of AI, which necessitates high-performance chips for data center training, inference, and other leading-edge devices, creating a cycle where AI drives semiconductor content growth, spurring further industry investment.

Regionally, Chinese chipmakers are leading with a projected 14 % capacity increase to 10.1 million wpm by 2025, fuelled by substantial investments from major foundry suppliers despite potential oversupply risks. Other key regions like Taiwan and South Korea are expected to grow at more moderate rates of 4 % and 7 %, respectively. At the same time, the Americas, Japan, Europe & Mideast, and Southeast Asia are forecasted to see modest increases in their semiconductor capacities.

Segment-wise, the foundry sector is anticipated to grow by 11 % in 2024 and 10 % in 2025, bolstered by Intel and Chinese expansion, while the memory sector, particularly DRAM, is set for significant growth due to AI-driven demand for higher bandwidth memory, contrasting with the slower recovery in the 3D NAND market.

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Is the shortage over?

While the semiconductor shortage is easing, it’s not entirely resolved. For the automotive industry, the shortage has largely subsided, with production losses due to chip shortages decreasing significantly in 2023. Automakers have adapted to the constrained supply, leading to a more stable production environment, although some uncertainties and risks of future disruptions remain​.

The situation is also complex in other areas. High-demand industries like advanced computing and consumer electronics continue to face challenges, particularly with the supply of leading-edge and specialized chips. While production capacity is expanding globally, with new manufacturing facilities being established, the full resolution of the chip shortage depends on addressing various structural issues, including geopolitical tensions and supply chain vulnerabilities​​. So, while significant progress has been made, the chip shortage is not entirely over.

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