Four Key Threats to Semiconductor Supply Chains

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Semiconductors are an integral part of every device in the digital age, with the sector set to become a $1 trillion industry by the end of the decade.

During the COVID-crisis, it became clear that disruptions to the global supply of semiconductors were impacting multiple industries, including electronics, automotive, manufacturing and defense.

Chip shortages shaved an estimated $240 billion off the US gross domestic product (GDP) in 2021, equivalent to 1% of total US GDP that year. The auto industry produced nearly eight million fewer vehicles as a result.

Common sources of bottlenecks include natural disasters, geopolitical conflict and fluctuations in demand.

The dominance of Taiwanese semiconductor producers is a significant source of vulnerability in a world of shifting geopolitics.

Insights

• A wide range of industries relies on semiconductors, including electronics, manufacturing and the military.
• Taiwan produces more than 90% of the most advanced semiconductors, with the M7.4 Hualien earthquake a reminder of the region's exposures and risk concentrations.
• The semiconductor industry experienced an acute shortage of supply during the pandemic. As a result, manufacturers are actively diversifying suppliers, recycling and reusing goods.
• From the drought impacting water levels in the Panama Canal to ongoing attacks in the Red Sea, a number of ongoing shipping chokepoints affect supply chains.
• Industries dependent upon semiconductors should prepare for further volatility, including planning for worst-case scenarios, such as disruption to the flow of goods out of Taiwan.