Last Updated on October 24, 2023 by Kevin Chen
Image source freepik
The recent semiconductor chip shortage revealed some deep challenges in and out of the industry. Some of the problems come from the electronic components used on the semiconductor chips.
When it comes to manufacturing semiconductor chips, sourcing for the components is among the very first steps of production. It comes after the design and planning stages.
Once the chip manufacturers have decide on what the semiconductor will do and the components that it will require, the next step is to buy the right components.
Usually parts of the semiconductor are sourced from the electronic component suppliers or directly from manufacturers.
What if there is a problem in getting the components?
Well, the whole chip production process will get affected.
The chip manufacturer will have to wait or look for another parts supplier.
This will eventually delay the overall production of the semiconductor chips.
So, which are thee challenges that tend to affect the semiconductor parts industry? Are there any solutions to these challenges ?
Keep reading as we discuss in details common challenges that affect the chip components industry and how they can be overcome.
Main challenges affecting the semiconductor parts industry
Now let’s highlight the most common challenges that are facing the semiconductor components industry
Disruption of the supply chain
This one had to be at the top of the list. Until the industry fully recovers from the disruption of the semiconductor supply chain, it will always remain the biggest challenge in the industry.
A disruption can happen at any segment of the supply chain. For example, if the the component manufacturer is not getting the raw materials in time there will be a delay in the manufacturing of the semiconductor parts. This will eventually affect the supply of the parts to the semiconductor chip fabricators.
There are various factors that can disrupt the semiconductor parts supply chain. In 2020, Covid-19 pandemic is to be blamed for the disruption whose impact is still felt three years later. Geopolitical tensions are among the other causes of the disruption.
What is the solution to the disruption in the supply chain?
Most component manufacturers have resorted to diversification. Currently, most are reducing their reliance on a few suppliers of semiconductor parts.
We have also seen companies getting into strategic collaborations and agreements hoping to remain stable in case of disruptions.
Also setting up proper supply chain management helps to deal with any expected disruption in the supply chain.
Shortage of the semiconductor parts
Closely related to the supply chain disruption is the shortage of the semiconductor components.
When the demand for the chip parts outpaces the supply, there will be shortage of the components.
This problem will end up slowing down the production of the electronic components.
Also, when there are a few manufacturers of the semiconductor parts, it will be inevitable to face shortage.
One way of dealing with this problem is through diversification. Semiconductor companies should consider sourcing parts from different sources. This way, you can easily jump the ship in case of a shortage from one source.
Again, supply chain management alongside inventory management system will come in handy when handling the shortage of the parts.
Counterfeit semiconductor parts
This is another major problem that is facing the semiconductor components industry. The high demand for these parts has motivated unscrupulous manufacturers to get into the industry. They are manufacturing counterfeit components, which tend to have similar features to the original parts.
The biggest challenge with the counterfeit semiconductor parts is safety and reliability. There is a high chance that these parts don’t meet the minimum industry safety standards. This can make them unsafe for use in electronics applications.
Also, such eelctronic components tend to have very low reliability ratings. This is mainly because the manufacturers are not answerable to anybody. The parts are likely to break down or get damaged frequently.
The best solution to avoiding counterfeit is for buyers to be educated on how to separate genuine and fake semiconductor parts.
Manufacturers can also lay their roles in protecting their products from being copied. One way is by implementing tight authentication technologies such as scanners which buyers can use to identify the components. Another way bis manufacturers partnering up with reputable suppliers and distributors of semiconductor parts. This way, buyers will know the exact places where to buy original or genuine semiconductor chip parts.
High cost of semiconductor parts
The issue of cost has had a negative impact on the semiconductor parts industry. Most buyers are always yearning ti get the cheapest semiconductor parts on sale. Sadly, this seems not to be a reality in the market.
The high cost of the semiconductor parts is making it hard for the new players to get into the chip manufacturing. This is because the cost is always way above their budget.
The load of the cost is also transferred to the final buyers o the electric devices. They will be sold at a high price to cover for the cost of the parts.
What is the solution to this challenge? This one is quite difficult since key factors that affect the cost are beyond the control of the main stakeholders.
However, some chip components manufacturers are opting to lower the production costs of the components. For example, some are using automation to get get quality components done within a short period. Adoption of the renewable energy sources is also saving companies a huge sum of the production cost.
Environmental and sustainability regulations
Sustainability is becoming a major problem which semiconductor components makers have to deal with. They have to deal with all the environmental regulations that have been set in the industry.
Some sustainability regulations are tough and extreme measures have to be put in place in order for the companies to abide by them. Some of these measures may end up increasing the production cost.
The good news is most manufacturers of the semiconductor parts are adopting the environmental and sustainability goals. Some have already incorporated green energy sources and safe ways of waste management.
Advanced technology
Semiconductor components are key ingredients for the technological growth and advancement. What is the speed at which technology is growing is outpacing the existing components? There will be a gap that should filled as fast as possible.
Manufacturers of the chip components are struggling to keep up with the fast pace of technological advancement. They need to produce components that will be compatible to the modern technologies.
A perfect example is the AI technology. There are very few hardware semiconductor components that can meet the demands for the artificial intelligence and machine learning.
The best solution to this is companies should invest in research and development of the electronic components. They should also invest in experts in this industry.
Inceased competition among the component parts manufacturer
This is another major challenge that is facing the semiconductor parts industry. There is a stiff competition among different manufacturers of the semiconductor parts. Companies are trying outdo each other on who produces the best parts.
Probably you are wondering why this should be a challenge. Doesn’t stiff competition makes things better for the end users?
It is true that competition encourages innovation among the semiconductor parts companies. However, it can be detrimental to the industry if the companies resort to some unscrupulous methods so as to stay ahead of the competition.
For example, stiff competition can be blamed for an increasing number of fake semiconductor components.
Also, in as much as competition gives buyers plenty of options to choose from, it can slow down the purchasing process whereby buyers will have to vet many manufacturers before choosing one.
The role of semiconductor parts industry in the economy
Image source freepik
Should I be concerned by the challenges that are facing the semiconductor parts industry?
Yes, there are many reasons why you should be concerned by the issues affecting the industry, whether directly or indirectly.
The fact that semiconductors are in every electronic devices just highlights the relevance of these components.
It means that without the parts, there will be no semiconductors, hence no electronic devices.
Talk of vehicles, smartphones, telecommunication systems, defense systems transport system, medical equipment, home appliances among many other devices.
The parts used for the manufacturing of semiconductor chips are all responsible for all these devices and application areas of the semiconductor chips.
If you are still not fully convinced, then it will be prudent to have a look at the numbers behind the semiconductor industry.
A report published by the Allied Market Research in 2020 revealed that in 202, the semiconductor industry was valued at $488.5 billion. The report further predicted that the market value of this industry is likely to grow at a staggering rate. It is estimated to hit $1,055.6 billion by 2028. This is the growth rate of 9.4%.
So, what is the catalyst for this massive growth in the semiconductor industry?
The most obvious cause is the increasing demand for the electronic devices in all spheres of life. Whether it is in transport, education, health, governance, security among many other areas.
There is a high demand for the devices with advanced technological features and semiconductor chips seem to have the right answers to this. Also, the fact that we are living in the digital age means that people will always be on the lookout for the new digital electronic devices that have the potential of making their lives easier and more convenient.
From the figures above alongside with other reasons, it is crystal clear that semiconductor parts industry has a direct impact on the economy. If the supply chain of the semiconductor parts market is smooth, then we will have a stable economy.
A stable supply chain means that there will be enough parts in the market and the semiconductor chip manufacturers will be able to produce adequate volumes of chips that will meet the market demand.
The price of the semiconductor chips will be stable and this will have a direct impact on the prices of the final electronic devices.
In the world of business, price stability will always remain a key component of the economy.
Limited resources for the new factories
From the challenges that we have discussed, you may be wondering why not build new semiconductor factories?
This may be be the quickest and broad solution to all these challenges.
But, is it that easy to build the factories that will be manufacturing parts to be used on semiconductors?
No, it is not easy, otherwise, we would be having hundreds of chip components spread all over the world.
Unlike in other industries, building electronic components factories is not just about setting up the facilities.
It takes time, financial resources and many other factors to get such companies running.
It takes years to set up an electronic component manufacturing plant. Researchers state that it can take up to five years to construct a chip manufacturing factory.
For the parts of the chips, we can estimate it will take between one to three years.
Let’s not forget the legal hurdles that such factories have to meet before they are allowed to run. Such companies should satisfy many regulators even before the construction commences.
Let’s not even address the labour shortage that these factories are likely to face. In most countries, it can be quite difficult to get experts who are perfect and have adequate experience required for the production of parts of the chips.
Conclusion
From this guide, it is clear that the semiconductor industry faces a myriad of challenges.
Some of these bottlenecks can be easily solved while others require a combination of many other external factors.
There is still need and urgency to overcome all these challenges in order to meet the high demand for the semiconductor chips.
From the challenges and the solutions it is clear that all the players in the semiconductor industries need to adopt to the changes as fast as possible.
Through innovation, the players will be able to absorb the challenges within a short time without being seriously negatively impacted.
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