How the global microchip shortage is affecting Canada’s economic future

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Microchip rush has huge impact on global industries (Bloomberg)

A global semiconductor shortage has disrupted the Canadian auto industry and caused production delays in the manufacture of toys, vehicles, electronics, refrigerators, and almost any product with a computer chip. It’s more than a handful of issues caused by something that may be small enough to fit on your fingertip.

And these problems are not going to go away any time soon. A survey of electronics manufacturers found that nearly 60% of companies expect the microchip deficit to continue until the second half of 2022 or beyond. Intel Corp. CEO Pat Gelsinger went further: “I don’t expect the chip industry to return to a healthy supply and demand situation until 23,” he said. he said last summer. “For a variety of industries, I think it gets even worse before it gets better.”

How did we get here? The chip shortage is the result of pandemic shutdowns, geopolitics, increased demand for electronics, and sheer bad luck.

The story begins in 2019 when the United States imposed restrictions on the export of American technology – including computer chips – to certain Chinese companies. Chinese manufacturers have responded to this blacklist by stocking semiconductors.

Then came the first lockdowns linked to COVID-19. The accompanying economic uncertainty has led some industries to suspend orders for computer chips. In particular, the temporary shutdown of North American auto factories in March 2020 meant automakers were buying fewer chips.

Chipmakers shifted those orders to other industries, and as demand for vehicles rebounded, semiconductors were no longer available. “The problem,” Gaurav Gupta, semiconductor analyst at Gartner noted in a 2021 Accenture report, “is that if that 10-cent chip is missing, you can’t sell your car for $ 30,000.”

The pandemic has also increased demand for electronic devices, including home office devices. And, as demand increased, supply chains slowed. Chinese companies control about 10% of the world’s semiconductor manufacturing capacity, and a shortage of shipping containers has further reduced availability.

And then there is bad luck. In March 2021, nearly two dozen machines were destroyed in a fire at a semiconductor factory in Japan that makes about one in three microcontroller chips used in cars around the world. A month earlier, power outages caused by an extreme cold snap in Texas forced Samsung, Infineon Technologies and NXP Semiconductors to temporarily halt chip manufacturing.

In the United States, the Biden administration has launched a task force to address supply chain bottlenecks and is working to create national incentives to expand manufacturing. In Canada, the private sector is taking the lead.

The Canadian Semiconductor Council, established in May 2021, sees the crisis as an opportunity for Canadians to think more strategically about where we source semiconductors from and for Canada to establish itself as as a leading developer and manufacturer.

A spokesperson for the council noted that one of the biggest barriers to starting Canadian hardware and semiconductor companies is lack of access to venture capital. Right now Canada has very minimal capacity in a handful of niches. The council plans to publish its “national semiconductor strategy and action plan” soon.

“Canada has a choice to make: either seize the incredible opportunity that lies before us or stick to a status quo that no longer works,” said Melissa Chee, president and CEO of ventureLAB of Toronto, as well as vice-president of the Canadian Semiconductor Council. . “In the ultra-competitive and critical semiconductor industry, no one will invite us to the table, we have to be bold and own the podium. ”

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