How the global microchip shortage impacts Canada’s economic future
The scramble for microchips is having a huge impact on global industries (Bloomberg)
A global shortage of semiconductors has disrupted Canada’s automotive industry and led to production delays in the manufacturing of toys, vehicles, electronics, refrigerators and almost any product with a computer chip. That’s more than a handful of problems caused by something that can be small enough to fit on your fingertip.
And those problems aren’t going away any time soon. A survey of electronics-makers reported nearly 60 per cent of firms expect the microchip deficit to last into the second half of 2022 or beyond. Intel Corp. CEO Pat Gelsinger went one further: “I don’t expect that the chip industry is back to a healthy supply-demand situation until ’23,” he said last summer. “For a variety of industries, I think it’s still getting 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 simple bad luck.
The story begins in 2019 when the United States placed restrictions on the export of American technology—including computer chips—to some Chinese firms. Chinese manufacturers responded to that blacklist by stockpiling semiconductors.
Then came the first COVID-19 lockdowns. The accompanying economic uncertainty led some industries to halt computer chip orders. In particular, the March 2020 temporary closure of North American auto plants meant automakers were buying fewer chips.
Chipmakers shifted those orders to other industries and as vehicle demand rebounded, semiconductors were no longer available. “The problem,” noted Gaurav Gupta, semiconductor analyst at Gartner in a 2021 Accenture report, “is if that 10-cent chip is missing, you can’t sell your $30,000 car.”
The pandemic also drove up demand for electronics, including home office devices. And, as demand rose, supply chains slowed. Chinese companies control about 10 per cent of global semiconductor manufacturing capacity and a shortage of shipping containers further reduced availability.
And then there’s the bad luck. In March 2021, nearly two dozen machines were destroyed in a fire at a semiconductor plant in Japan that makes about one in three microcontroller chips used in cars across the world. One month earlier, power shortages 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 launched a task force to address supply-chain bottlenecks and is working to create domestic incentives to expand manufacturing. In Canada, the private sector is taking the lead.
Canada’s Semiconductor Council, established in May 2021, calls the crisis an opportunity for Canadians to think more strategically about where we are sourcing semiconductors and for Canada to establish itself as a leading developer and manufacturer.
A council spokesperson noted that one of the biggest hurdles to creating Canadian hardware and semiconductor companies is a lack of access to venture capital. Presently, Canada has very minimal capacity in a handful of niche areas. The council soon plans to release its “national semiconductor strategy and action plan.”
“Canada has a choice to make: we either seize the incredible opportunity before us, or stick with a status quo that’s no longer working,” says Melissa Chee, president and CEO of Toronto’s ventureLAB, as well as vice-chair of Canada’s Semiconductor Council. “In the ultra-competitive and critical semiconductor sector, nobody is going to invite us to the table—we need to be bold and own the podium.”
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