Imagine a world without chips. No smartphones, laptops, TVs or appliances. No internet, GPS or digital payments. No medical devices, military equipment or space exploration. Chips are the brains of modern technology, and we depend upon them for almost everything we do.

The Chip Shortage Crisis

Fortunately, we inhabit a world abounding in chips. However, the chip shortage crisis that took root three years ago threw this abundance into sharp relief, casting a shadow over the industry. Tracing its origins to the spring of 2020, the crisis emerged from the turmoil of the COVID-19 pandemic that wreaked havoc on supply chains and logistics. This disruption coincided with a global surge in demand for PCs and other electronic devices, driven by a global shift to remote work.

The chip shortage became further entrenched due to an intricate web of factors including inadequate capacity at semiconductor fabrication plants, geopolitical trade tensions and unforeseen natural disasters. The ensuing supply-demand imbalance disturbed production timelines, escalated prices and restricted the availability of crucial chips integral to the manufacture of a vast spectrum of electronics,hitting the automotive sector especially hard .

At the peak of the crisis, the chip shortage pervaded all component categories. Presently, while we've weathered the worst of the storm—with certain categories even witnessing an oversupply—the lingering shortage of select components (like critical MCUs) continues to pose a formidable challenge for some industries.

While the American CHIPS Act, enacted in August 2022—which provides $280 billion for investment in domestic semiconductor production, research and development—promises to increase domestic chip production, not enough new capacity has come online yet to overcome all shortages. The crisis may have abated, but the industry is not out of the woods just yet.

The Electronics Industry’s Response

How has the electronics industry been responding to this crisis? How is it adapting to the new challenges and opportunities? How is it innovating and collaborating to overcome the shortages and to prepare for an uncertain future? These are the questions that this article will explore and answer.

The IC chip shortage has exposed vulnerabilities in the electronics industry, while also revealing opportunities. The industry has been adapting to the crisis by implementing innovative solutions with advanced IC packaging, supply chain management and new data analysis platforms, as well as improving chip design and manufacturing capacity, enhancing government and industry support and reducing dependence on critical raw materials.

Advanced IC packaging

Advanced IC packaging allows multiple chips to be combined into a single package, which increases the flexibility of chip design and reduces the dependency on single-source suppliers. Traditional packaging involves attaching a single chip to a substrate and connecting it to external devices through wires or solder balls. Advanced packaging involves stacking or integrating multiple chips into a single package and connecting them through micro-bumps, through-silicon vias (TSVs) or other interconnects.

Examples of advanced packaging schemes and technologies include 3D-IC, 2.5D and wafer level packaging (WLP). Advanced packaging offers several benefits over traditional packaging, including improved performance, power efficiency and device reliability, all while reducing footprint.

According to a report by Yole Group , the advanced packaging market is expected to grow from $32 billion in 2021 to $57 billion in 2027. The electronics industry is investing heavily in research and development to meet this growing demand. The report also forecasts that advanced packaging will account for more than 50 percent of the total semiconductor packaging market by 2025, up from 39 percent in 2019.

Supply chain management

The electronics industry has also focused on improving supply chain management to address problems that the chip shortage made apparent. This includes optimizing the sourcing, logistics and inventory of components to ensure a consistent supply at good pricing. Supply chain management is also helping mitigate the risks and challenges of component transactions, such as price fluctuations, component obsolescence and counterfeit issues.

Supplier diversification has been embraced by the industry, with component manufacturers working diligently to expand their supplier networks across different regions, countries and markets. One example of how electronics companies are diversifying their suppliers is Bosch.

The German automotive supplier has diversified its sources of automotive chips by collaborating with smaller chip makers, such as NXP and Infineon, to secure critical microcontrollers and sensors, reducing dependency on single-source suppliers.

Manufacturers have also prioritized supplier risk management, conducting regular assessments, audits and evaluations of suppliers’ performance, quality and compliance. For example, Samsung has established a comprehensive supplier risk management system that involves collecting and analyzing data on its suppliers.

Industry players are establishing longer-term contracts and partnerships with suppliers. This involves negotiating volume discounts along with price stability and delivery guarantees. Long-term relationships foster trust and collaboration between customers and suppliers, which leads to stability, efficiency and supplier innovation. For example, Apple has signed long-term contracts and partnerships with several of its key suppliers—such as TSMC, LG Display and Sony—to secure the supply of chips, displays and cameras for its devices.

Leveraging shared industry data

The electronics industry is increasingly leveraging shared data and new analytics and visualization tools to optimize operations. These tools help process and interpret industry data and generate actionable insights. One example is Spectra a web-based platform that provides access to industry data with functions for data analysis and visualization. Spectra allows users to search, compare and monitor components across sources and platforms, providing reports and alerts on component availability, pricing and specifications.

Spectra uses the Electronic Design to Delivery Index (EDDI), a data intelligence platform powered by Nexar that’s used to exchange information between component manufacturers and distributors. EDDI data is derived from analyzing millions of electronic components across online databases, marketplaces and search engines, providing valuable insights into the supply and demand trends of components.

The use of EDDI data provides chip manufacturers with several benefits, including improved accuracy, security and efficiency. For example, by offering extensive information on electronic components and their features and availability, designers can find and select the best available components for specific requirements at the best available prices.

Other areas of focus

The electronics industry is also addressing chip design and manufacturing capacity, government and industry support, and the industry's dependence on critical raw materials.

Increase chip design and manufacturing capacity: The electronics industry is expanding its chip design and manufacturing capacity. Efforts span increasing the number of chip designers and engineers, upgrading existing chip fabrication facilities or building new ones, adopting more advanced chip process technologies and equipment, and developing more efficient chip design methodologies.

Nurture government and industry support: The electronics industry is engaging with government and industry stakeholders, communicating and demonstrating the value and importance of the electronics industry to the economy and society at large.

Reduce dependence on critical raw materials: Another issue that affects the chip shortage is the industry’s dependence on critical raw materials that are essential to produce components and devices. To reduce this dependence, the electronics industry is exploring and developing alternative and substitute raw materials that have similar or better properties and performance.

New Opportunities Await

The global chip shortage has impacted many industries and consumers. It has exposed some vulnerabilities and inefficiencies in the semiconductor ecosystem. However, it has also stimulated innovation and collaboration amongst electronics industry players.

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Navigating the IC Chip Shortage