Jaguar Land Rover joined a long list of car manufacturers which had to temporarily close down its factories due to shortage of electronics components. And the automotive industry is not alone; every industry where electronics play an ever increasing role has experienced crippling shortages and supply chain challenges in the last twelve months.
Why can’t we just make more chips?
It takes years to build semiconductor fabrication facilities and billions of dollars—and even then the economics are so brutal that you can lose out if your manufacturing expertise is a fraction behind the competition. Former Intel Corp. boss Craig Barrett called his company’s microprocessors the most complicated devices ever made by man.
This is why countries face such difficulty in achieving semiconductor self sufficiency. China has called chip independence a top national priority in its latest five-year plan, while U.S. President Joe Biden has vowed to build a secure American supply chain by reviving domestic manufacturing. Even the European Union is mulling measures to make its own chips. But success is anything but assured.
Manufacturing a chip typically takes more than three months and involves giant factories, dust-free rooms, multi-million-dollar machines, molten tin and lasers. The end goal is to transform wafers of silicon—an element extracted from plain sand—into a network of billions of tiny switches called transistors that form the basis of the circuitry that will eventually give a phone, computer, car, washing machine or satellite crucial capabilities.
Three companies—Intel, Samsung and TSMC—account for most of this investment. Their factories are more advanced and cost over $20 billion each. Once you spend all that money building giant facilities, they become obsolete in five years or less. To avoid losing money, chipmakers must generate $3 billion in profit from each plant. But now only the biggest companies, in particular the top three that combined generated $188 billion in revenue last year, the brutal economics of the industry mean fewer companies can afford to build multiple plants.
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