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Semiconductors crisis and the impact on the telecom industry

Shortage of semiconductor chips in the telecommunication industry. What does this mean and what consequences can be expected? Find out more here!

You have probably heard about the semiconductor crisis that is affecting the telecom industry today. In this article, we will review the current state of this worldwide shortage of semiconductors in the middle of 2022. We will analyze its causes and consequences on the concerned actors, then the possible solutions.

What is the Semiconductor Chip and what does it do?

A semiconductor chip, commonly known as a computer chip or integrated circuit, is an integrated circuit printed on conductive material (silicon is widely used at present). It is the heart of the computer, and the operating software is based on this physical building component to play an effective role. For a long time, chip manufacturing have designed more and more complex circuits for smaller and smaller spaces. The semiconductor chip industry has greatly improved the speed and cost of computers. However, the crystallization of modern technology also leads to the scarcity of semiconductor chips due to their high-tech properties.

BBC has reported that silicon, as the core material of the semiconductor business, has a market value of US $500 billion, providing power for various technology industries with a global value of more than US $3 trillion. At present, the raw materials of the semiconductor industry are mainly produced in Japan and Mexico. The main production area is Taiwan, China, and the United States also produces a small amount of production.

The impact of the global semiconductor shortage on the telecommunications industry

The situation has the potential to impact the telecommunications industry where there are shortages of semiconductors in areas such as power management, memory, and screen display for telecommunications equipment. In April 2021, Bloomberg reported broadband providers (ISPs) were facing delays more than a year on internet router orders with carriers been quoted twice the normal order lead time of up to 60 weeks. The potential lack of supply of broadband routers could for example impact ISP broadband subscription sales/upgrades.

KPMG’s Q4 2020 industry survey of 156 semiconductor senior executives highlighted the categories where chips would be in most demand in 2021, with the top three being:

  1. Sensors/MEMS (microelectromechanical systems) – where IoT applications and automotive are seen as the top growth categories.

    Consumer and industrial IoT remain ongoing growth drivers for semiconductors with low power IoT devices (wearables, hearables, health monitoring) continuing to grow in demand. Smart homes also drive growth in connectivity and sensor categories as demand rises for smart speakers, cameras and presence monitoring applications such as heat and motion detection, smart energy consumption and room occupancy. eSIM penetration is also expected to be heavily driven by the automotive sector (see STL Report eSIM: How to break through the barriers), while security is also expected to rise in prominence across all IoT devices.

    Advanced vision sensing will be increasingly required for facial recognition, computational photography, long range scanning, augmented reality and robotics. In July 2021, Semiconductor Engineering highlighted a shortage in CMOS image sensors, which enable camera functions for cars, smartphones, security cameras, and industrial/medical systems, assisting also in computational photography and augmented reality applications.

  2. Analog/radio frequency (RF) / mixed signal (SoC) – Semiconductor Engineering highlighted shortages in areas such power management integrated chips (PMIC) and display driver integrated chips (DDIC) in July 2021.

    PMICs manage flow and direction of power in products such as smartphones as well as wearables and hearables. PMIC are also critical for PCs and servers.

    In terms of power demands, the shift to 5G brings with it large increases in data and computing power, and with it an increase (densification) in base station antenna across multiple locations requiring connectivity, power, and sensors.

    5G (and 4G) smartphone penetration will also continue to drive demand for semiconductors well into 2022. While smartphone sales contracted in 2020 during lockdown.

  3. Microprocessors (including GPU/MCU/MPU) to support ongoing cloud (data centre) and virtualisation applications.

    Cloud computing (server) requirements have increased further as people have shifted to fully or partially working from home. Hyperscalers such as Amazon, Microsoft, and Google continue to make considerable investments in cloud infrastructure and platforms that also aim to support network operators. Semiconductor Engineering (July 2021) and Susquehanna Financial Group research highlighted shortages in microcontroller MCUs which integrate CPU and memory on the same chip and are used across cars, communications equipment, appliances, and industrial equipment. Semiconductor Engineering also noted comments from the CEO of Tokyo Electron that DRAM (flash short-term memory) supply was also “tight due to higher 5G mobile, PC, and data center demand”. Smartphones such as the 5G iPhone 12 for example come with 4GB DRAM.

How long will the semiconductor chip shortage last

Indeed, the various partnerships announced (or already launched) as well as the projects for the construction of semiconductor factories (especially in Europe) should help reduce the negative consequences of this shortage.

In addition, some governments have also announced encouraging measures that would help fight against this crisis. This is notably the case in Japan (notably in the framework of the TSMC x Sony partnership) and India. The latter has developed a global strategic plan of 10 billion dollars, to ensure the supply of semiconductors in India in the long term. Indeed, the country wants to produce high-end chips locally, which would allow Indian semiconductor manufacturers to have a more secure and competitive supply chain.

But some are less optimistic: indeed, they stress that this global crisis could only be alleviated if the players concerned put the announced measures into practice.

Moreover, the consequences of Covid-19 are still very present in this market, which makes the future all the more uncertain. In conclusion, it is difficult to estimate a precise date when this crisis will end. However, mobilization of the different actors affected by the chip production shortage could effectively accelerate the end of the crisis.

Causes and consequences of semiconductor crisis

The semiconductor shortage today can be explained by an unfortunate combination of factors. In the first half of 2020, the automotive industry faced a sharp drop in demand, leading to significant disruptions in the supply chain. At the same time, the shift to remote working due to the Covid-19 health crisis and the resulting need for increased connectivity has led to a considerable increase in demand for hardware (personal computers, video games, communication equipment, etc.). However, the manufacturing of the latter requires semiconductors.

Therefore, the companies producing these chips have concentrated their efforts on these other sectors, which have proven to be much more profitable (than the automotive sector in particular).

As a result, by the time automotive demand picked up faster than expected in the second half of 2020, the semiconductor industry had already redirected much of its production to meet demand in other, more lucrative areas. This has also led to suspensions of many automotive production lines and a drop in new vehicle sales (with significant production delays due to lack of parts).

We also see the need for semiconductors increasing in many sectors, which puts further pressure on demand. The automotive sector is currently undergoing a massive electrification process. In order to offer a more responsible and sustainable mobility, European manufacturers are striving to offer a range of electric and/or hybrid vehicles. However, the production and marketing of these vehicles requires a significant amount of semiconductors.

The cryptocurrency sector, which is currently in full development, needs to be equipped with semiconductors in order to function optimally. According to Nomura Bank, bitcoin & cryptocurrency applications accounted for 10% of the total sales of TSMC, one of the largest semiconductor producers today.

Moreover, the semiconductor market is oligopolistic (i.e. characterized by a strong demand (customers) and only a few suppliers (sellers). A few key players (the majority of which are Asian) have control oversupply. They can therefore favor certain sectors to the detriment of others that they consider more profitable.

Indeed, today, three companies dominate semiconductor production: the American Intel, its South Korean competitor Samsung, and the TSMC group, based in Taiwan. Asia dominates this sector: China and Korea hold 75% of this market. These Asian companies master the entire value chain of the semiconductor: from production to marketing. This is one of the reasons why Europe is so dependent on Asia.

Finally, it should be noted that a series of fires have impacted the supply of semiconductors.

In March 2021, a fire at the Naka plant in Japan owned by Renesas Electronics, one of its three largest semiconductor suppliers, caused more damage than expected. This led to long delivery delays, further exacerbating supply tensions in the automotive industry.

More recently, a fire broke out in the Berlin plant of ASML, one of the world’s leading manufacturers of photolithography machines for the semiconductor industry. A delay in its production could therefore have a serious impact on the customers concerned.

Alternatives and solutions

As stated in Bloomberg, ISPs face a wait of more than a year for broadband routers, with the minimum wait time now running at 60 weeks and rising. Supplies of power management, memory, and screen display chips are also scarce and getting scarcer. Elsewhere, in the consumer and industrial IoT sectors demand for semiconductors for low-power devices such as wearable technology and health monitoring are on the rise, as demand in the connectivity and sensor categories such as smart speakers, cameras, and also in presence monitoring applications such as heat and motion detection and smart energy consumption.

And then, of course, there’s 5G - and, while we’re at it, let’s don’t forget 4G, which is assuming greater importance every day as an increased 4G spectrum enhances 5G network penetration and speeds. Enterprise 5G is expanding rapidly and consumer 5G is poised to take off properly next year and it is forecast that chip manufacturing demand will grow throughout 2022 and on into the future as 5G becomes more popular.

So, it will be a matter of meeting short-term supply chain needs while ensuring long-term manufacturing production planning. The indications are that chip availability will remain tight throughout all of 2022 but will begin to loosen up sometime in 2023, hopefully early in that year - but whatever happens, regional disparities will remain.

Asia may be the dominant region in terms of the manufacture of chips but no single country yet has the complete production stack within the boundaries of its own territory – which, considering China, is just as well. As the STL report puts it, “the semiconductor value chain relies on collaboration and trade between the US, Taiwan, South Korea, Japan, Europe, and China.” However, Covid and poor political relations with China have spurred the in-country construction of new semiconductor fabrication plants and the upgrading of established manufacturing facilities.

The Renault x Qualcomm Alliance: US chipmaker Qualcomm has signed an agreement with Renault to extend their semiconductor partnership. Qualcomm’s technologies will be used in Renault’s upcoming more connected and intelligent vehicles.

“Working closely with a technology leader like Qualcomm Technologies allows us to innovate faster to keep up with emerging trends and meet the need for sophisticated functionality,” said Thierry Cammal, Alliance Vice-President Software Factory at Renault.

TSMC x Sony partnership: The Japanese government has announced its intention to invest nearly $400 billion in the construction of a new factory in southwestern Japan. This will be built by TSMC, a Taiwanese company, leader in the semiconductor market. At the same time, the company has also confirmed its intention to invest, alongside Sony, nearly 7 billion dollars for the construction of this plant. It is expected to open in 2024.

Ford x GlobalFoundries will join forces: Ford recently announced its ambition to explore the different possibilities of semiconductor manufacturing to support the development of the automotive industry. The carmaker will join forces with the American GlobalFoundries, one of the largest independent semiconductor foundries in the world. The aim is also to boost the supply of chips for Ford but also for the American automotive market.


The race for self-sufficiency in semiconductors is on, and it’s a very costly exercise. Estimates are that for any region to achieve self-sufficiency will cost at least $1 trillion and result in rises in the price of chips for end-users in the range of 35 % to 65 %. A couple of months ago, SEMI, the global industry association for the entire electronics design and manufacturing supply chain, reported that $149 billion is being spent on 19 new high-volume fabs that are now under construction and will be operational by the end of this year or the beginning of 2022 with a further 10 to be built later that year.

A solution to the problem is within sight but still many months away: It might be as well to stick with your old cellphone, car, or TV for a while longer.

Jun 21,2022 ● 10 min read

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