How semiconductors play a crucial role in global economy

Geopolitical risks have also played a key part, especially when the Trump administration began regulating the sale of semiconductors to Chinese firms, and they later began stockpiling chips essential to 5G smartphones and other products.

Subsequently, US companies were cut off from chips made by China’s Semiconductor Manufacturing International Corporation after it was blacklisted by the US government.

In moves to alleviate the problem, manufacturers of automobiles and medical devices are now in talks with the Biden administration to subsidise new US semiconductor manufacturing capacity.

Though the world’s largest semiconductor manufacturer, Taiwan Semiconductor Manufacturing Company (TSMC), has increased its capital spending budget to US$28 billion, it will still need at least five years to build a new semiconductor fabrication plant.

All these factors have led to the world’s ongoing semiconductor shortage.

According to Deloitte, many kinds of chips are also expected to be in short supply throughout 2022, with some component lead times pushing into 2023. However, it will be less severe than in 2021 and will not affect all chips.

The Semiconductor Industry Association reported that in 2020, global semiconductor sales rose 6.6 per cent to $440 billion, even though global GDP contracted 3.5 per cent. This size and value imply the role that semiconductors play in global products and operations, or the economy in general, are important to leaders across industries.

Semiconductors may contribute to only a small percentage, but they power trillions of dollars of goods and processes. Semiconductor demand is also heavily driven by digital transformation and further accelerated by the pandemic.

For instance, chip demand for both devices and data centres soared in 2020 and 2021. In early 2021, the pandemic caused PC purchases to shoot up by more than 50 per cent year over year, while chip sales increased by 30 per cent for cloud computing data centres.

In the automotive industry, the average car in 2010 contained $300 worth of microchips. This will likely rise to more than $500 in 2022, totalling over $60 billion for 2022. Still, the early 2021’s supply chain issues have illustrated that a lack of critical chips could result in a $61 billion shortfall in global automotive sales this year.

Semiconductor situation in Thailand

As an export hub for semiconductor parts, the industry seems promising as a result of rising global demand. In the first nine months of 2021, Thailand’s export of electronic parts grew 8.2 per cent year over year. The electronic parts industry in Thailand is mainly manufactured for export, totalling 80 per cent of total local production, with midstream products such as integrated circuits, semiconductors, and printed circuit boards.

SCB EIC also predicted that the export of Thai electronic parts would grow approximately 7 per cent year over year, backed by growing demand, an increasingly digitalised economy and the work from the home trend.

In the longer term, Thailand’s electronic parts might play a higher role downstream, such as in automotive, healthcare and electronic appliances, which would be both an opportunity and challenge for entrepreneurs for research and development amid the fast-paced changing market.

Semiconductor shortages have also impacted Thailand’s downstream production, especially the automotive industry. The pandemic’s new wave in 2021 had further contributed to already increasing labour shortages and halted manufacturing productions for cars and parts, particularly in the second and third quarters.

Toyota had ceased production in Thailand in July 2021, while AutoAlliance, the Ford and Mazda manufacturer, had shut its production for two weeks during June to July 2021.