What Factors Caused the Current Chip Shortage?


June 7, 2022

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Silicon wafer manufacturing companies are working hard, but the global chip shortage continues. Supplies of products like car electronic systems and PlayStation 5s are significantly affected. At the same time, the demand for wafers and chips continues to rise.  

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Events That Led to the Current Shortage

The US-China Trade Conflict

The trade conflict between the United States and China over the mobile device maker Huawei began in 2019 and continued escalating. In May 2020, the Trump administration announced sanctions prohibiting Huawei and its suppliers from using American-made software and technology to produce chips.

The Taiwan Semiconductor Manufacturing Company (TSMC) Chairman Mark Liu alleged in 2021 that the continuing restrictions on Huawei caused a semiconductor shortage. He suggested that certain companies purportedly hoarded chips to preempt being put in a similar supply situation.  

The COVID-19 Pandemic

The onset of the COVID-19 pandemic caused an unprecedented demand for electronic gadgets like laptops and smartphones. The need to stay at home also instituted measures like remote schooling and telemedicine, both of which require devices that use processors. In fact, 2020 saw a 6.5% growth in semiconductor sales, a rise that was sustained through 2021 and 2022.

Coupled with difficulties in border controls and shutdowns, manufacturers like Samsung and TSMC struggled to keep up with the global demand for chips.

The Drought in Taiwan

Taiwan experienced the worst drought in 50 years in 2021. The dwindling water supplies strained TSMC’s production capabilities since water plays a massive role in wafer and chip manufacturing. For instance, silica sand is boiled in water to remove carbon and isolate silicon crystals.

Since Taiwan accounts for 65% of the global chip supply, the drought placed further pressure on an already fragile situation.

The War in Ukraine

Lastly, the ongoing conflict in Ukraine has cut off the supply of neon gas vital for the photolithography process. Ukraine supplies roughly half of the world’s neon gas demand, but the Russian invasion forced companies like Ingas and Croyin to cease operations. As of May 2022, stocks remain sufficient but could become scarce if the war does not end immediately.

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