Technology the key to tackling India's semiconductor shortage

22 April 2021 3 min. read

A delicate supply chain has made the semiconductor industry vulnerable – threatening the automotive and other sectors in India and across the globe. According to EY, rebuilding this supply chain with technology at its core could help the sector bounce back.

Semiconductors are materials that can conduct charge with a higher heat resistance than metal. In today’s economy, they are used to make chips for smartphones, computers, vehicles, industrial equipment and a host of other gadgetry. 

Covid-19 had a mixed impact on the semiconductor industry. On the one hand, demand increased. Home entertainment devices such as TVs, tablets, consoles etc. gained popularity during lockdown, while IT and healthcare saw unprecedented boosts in activity. The problem is that supply fell through as the year went on, for several reasons. 

Semiconductor supply chain

Vinay Raghunath, partner and automotive lead at EY India, explained how the auto sector exemplifies the semiconductor story last year. With all the in-built gadgets and the advance of autonomous vehicles, electronics take up 35% of the total car manufacturing costs today – compared to 1% in 1950. Semiconductors make up the lion’s share of this expenditure, which means both industries are very much intertwined.

“As the world began to recuperate from the impact of Covid-19, auto original equipment manufacturers started to witness steady increase. At present, the positive demand of automobiles has started to come back and we see that the semiconductor industry is finding it hard to cater to the increasing demand.”

So pervasive is the challenge that major vehicle manufacturers globally have actually scaled back production – including the likes of General Motors, Ford, Volkswagen and Toyota. Much of the shortage has to do with global supply chain disruptions that emerged during the thick of the crisis. 

For semiconductors, any disruption tends to have a heavy impact – given the expansiveness and complexity of the industry’s supply chains. EY India’s business consulting leader Ashish Nanda explained: “The semiconductor manufacturing process requires very unique, and sometimes scarce raw materials and chemical substances.” 

“Due to their unique and specialised character, these tend not to be widely available and can sometimes only be mined in conflict areas. Any disturbance in the supply of these materials has immediate effects on production.”

Semiconductor capital equipment value chain

This includes vulnerabilities to macroeconomic, geopolitics and natural disasters and sudden changes to regulations – always a risk given how production is usually spread across several countries and jurisdictions. Any one of these factors can tip the balance of semiconductor supply and demand.

Per EY’s report, the best way to stay resilient and emerge stronger from the crisis is through technology. “The current semiconductor shortage will certainly revive to meet the increasing demands of the present day, provided it is well collaborated with the latest digital technologies such as analytics, machine learning, artificial intelligence, among others,” said Nanda. 

“This can tremendously help restore the intelligent and smart supply chain. And yet again, the automotive sector will breathe in greener pastures.”