Despite Shortages, Semiconductor Industry Expected to Grow 10% in 2022

About 80% of the world’s semiconductor chips are manufactured in just a few countries, most notably China and Taiwan. When Covid-19 struck, these manufacturers suffered long-term lockdowns and labor reductions. The resulting massive shortages crippled production across a variety of industries.

“Because of the pandemic, the semiconductor chip shortage of the past two years resulted in revenue misses of more than US $500 billion worldwide between the semiconductor and its customer industries, with lost auto sales of more than US $210 billion in 2021 alone,” reports Deloitte.

Chips are still in short supply, in part because they are time-consuming to build, especially with the pandemic-induced labor shortages. As Covid-19 wanes, even with current supply chain disruptions and shortages, Deloitte predicts the global semiconductor chip industry will grow at a 10% rate in 2022 to reach about US $600 billion. Deloitte still expects aggravating supply chain shortages to continue through the first half of 2022, “hopefully easing by the back half, but with longer lead times for some components still stretching into 2023, possibly well into 2023.”

This recovery is especially good news for the automotive industry. When they resumed production, semiconductor manufacturers prioritized electronics companies over automakers for their limited supplies. As a result, nearly every manufacturer in the auto industry experienced frustrating chip-related slowdowns and shutdowns—especially for electronic vehicle (EV) production.

EV Production Delayed

The global shortage of semiconductor chips has vexed the automotive industry for the last several years, forcing many car manufacturers to suspend their production for long intervals. The chip shortage especially threatens the Biden Administration’s electric vehicle goals, which call for 50% of all new vehicles to be electric by 2030.

Losses suffered by automakers due to the shortage of chips have been huge, reports The Washington Post. The global auto industry produced nearly 8 million fewer vehicles in 2021 because of the lack of chips, causing $210 billion in lost revenue. The related collapse in auto sales to consumers shaved more than two percentage points from U.S. gross domestic product growth in the third quarter of 2021.

The average electric vehicle utilizes about 2,000 chips, roughly double the average number of chips in a non-electric car. There are currently simply not enough semiconductor chips to meet EV production needs.

These critical delays are viewed by many as a threat to national security. Currently, U.S. semiconductor manufacturing capacity stands at 12% of global capacity. To boost domestic production, the U.S. Congress has proposed a $52-billion legislative package to revitalize the U.S. semiconductor industry. The “Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act,” or “CHIPS for America Act,” has several versions circulating in Congress, with no final legislation yet proposed.

Rough on Supply Chain Partners, Too

Companies in the semiconductor supply chain are also impacted by supply disruptions and material shortages. This includes custom semiconductor processing equipment manufacturers or custom vacuum coating tool suppliers. High-vacuum conditions are typically required to fabricate semiconductor chips and apply physical vapor deposition coatings.

“We are seeing record-high demand for our equipment, but like other industries, we are also dealing with staffing shortages and long lead times for components,” says Scott O’Connell, vacuum sales, North America for Anderson Dahlen, Inc., a Gray company. “The OEMs that manufacture the tools to make semiconductor chips are also struggling to keep up with the current demand. Lead times for new equipment are so long that some semiconductor manufacturers are seeking out new OEMs to try and get tools made faster.”

Moving Forward

In 2021 the semiconductor industry increased overall unit production and, for some markets, exceeded expected growth rates—a pace that will hopefully continue through 2022. Other factors that will drive semiconductor growth are 5G, auto electrification, cloud applications, server farms, and the integration of artificial intelligence for an expanding range of applications.

“These industries will require higher performance and an increased number of semiconductor chips in order to satisfy higher compute power requirements,” states Jim Feldhan, president of Semico Research. “Long-term growth demand from these and other markets is critical to the success of the semiconductor industry, as all foundries and integrated device manufacturers have substantially increased their capital expenditures in new fabrication facilities to supply this impending demand for chips.”