Semiconductor Crisis: Shortage and the Search for Technological Sovereignty

Despite a well-filled order book, many companies are forced to reduce (or even cease) their activity due to a shortage of electronic chips that no one could anticipate. Today most suppliers are located in Asia. They cannot meet the demand, thus forcing companies to review their production schedule.

No industry is immune to this new situation. Car manufacturers are particularly affected. RENAULT saw its sales decline by 12% during the first half of 2022, to 1 million units. The brand Renault down 16.9% to 716,720 units. This is also the case for most European players in the sector.

How to explain this situation ?

The Covid 19 health crisis severely disrupted the automotive sector, leading to a drop in demand for semiconductors, while at the same time demand exploded for individual equipment (computers, smartphones, video game consoles, temperature sensors for air conditioners, etc.). The semiconductor industry has thus adapted by focusing on high value-added products for consumer electronics markets to the detriment of other sectors. The latter are now suffering the effects of the repositioning of the main chip manufacturers.

Before entering into a more detailed analysis of this situation and its consequences, it is perhaps necessary to clarify a certain number of points.

What do we mean by semiconductor?

A semiconductor is a material that has the electrical characteristics of an insulator, but for which the probability that an electron can contribute to an electric current is sufficiently large. In other words, the electrical conductivity of a semiconductor can vary depending on the raw materials used in its composition (silicon, germanium, silicon carbide, etc.) and its manufacturing process (introduction of impurities to modify the electrical properties of the semiconductor).

Their production remains an expensive, complex and time-consuming process. It requires years of research and development to design, develop, produce and market a range of semiconductors.

Who are the main suppliers of these semiconductors?

Due to the complex manufacturing process requiring a large volume of investment, there are ultimately few specialized companies in the world that have the capacity to meet market demands. Based in Taiwan, TSMC is the most important company in the sector, alone producing more than 50% of the world’s semiconductors. It holds 85% of the world market for semiconductors measuring less than 7 nanometers. The market is attractive and arouses envy to the point that in July 2021, the Chinese SMIC announced that it had the capacity to produce 7-nanometer chips in order to equip miners with Bitcoin. Samsung, also has the capacity to produce this type of semiconductor, just like Intel, which has announced the manufacture of its first 7-nanometer chips for 2023. The engraving of electronic micro-components continues to be refined. To counter this new competition, TSMC plans to open 5-nanometer production lines of which Apple is expected to be a prime beneficiary for its computers and iPhones. We can only deplore the virtual absence of European companies on the semiconductor market. The EU weighs only 8.3% of the global market, and no European company is capable of producing components under 22 nanometers.

To fully understand the interest of this segment and the issues arising from it, it should be noted that the race to miniaturize semiconductors and integrated circuits (including the CPUs and GPUs that equip our PCs and smartphones) will make it possible to increase the power and therefore the performance of our future electronic equipment.

What are the reasons for this shortage of semiconductors?

The sources are multiple, starting with the Covid-19 crisis, which has considerably impacted the production activities of semiconductor companies, while at the same time, due to confinements and the implementation of telework the demand for electronic equipment (including laptop computers) soared.

At the same time, the demand for electronic chips is exploding due to the following phenomena: the deployment of 5G technology, the development of a new generation of smartphones compatible with this technology, technological breakthroughs in the automotive industry (electric cars, autonomous cars, control of airbags, safety distances, motor and battery control), the growth of the home automation and leisure market (game consoles, VR as well as the growing success of connected objects.

The global semiconductor market will increase in 2022 by 13.7% compared to 2021 to reach $661 billion. Remember that this market had already grown by 25% in 2021 compared to 2020[1]

A major issue of technological sovereignty

On reading the elements above, it seems obvious that the market for semiconductors used in the manufacture of electronic chips has become a major strategic issue for the major nations. The United States, China and East Asian countries already account for 75% of the world’s semiconductor manufacturing capacity[2] and are still trying to secure their supplies.

The shortage of semiconductors has led the main world powers, including the EU, to establish action plans to reduce their dependence on Asian countries. In February 2022, the United States got a head start by negotiating with TSMC the construction of a state-of-the-art factory in Arizona in order to secure American chip supply chains.

For its part, the American giant of the sector, Intel, announces the construction of two semiconductor factories in the United States. A massive investment plan of up to 80 billion euros over the next ten years, including the establishment of two new factories in Europe, is also planned in order to develop semiconductor production capacities.

China, which alone produces 36% of the world’s electronics (but only exports 7.6% of semiconductors sold throughout the world) intends to take advantage of its technological and territorial hegemony to make “technological independence a priority of its 14th five-year plan (2021-2025).

The European Union has great ambitions in this area. It intends to legislate on a “European Chips Act” to defend and above all extend its technological sovereignty on the semiconductor market by 2030. The objective is to produce 20% of semiconductors in the world. In other words, the EU wants to increase its market share by a factor of 2.5. To achieve this, the European Union has decided on a vast plan of measures, amounting to €43 billion in public-private investment, i.e. half of the investment planned by Intel.

What are the economic consequences of this semiconductor crisis?

Many industries are impacted by this semiconductor crisis, which has the immediate effect of paralyzing certain types of production (automotive, electronics, etc.). At best we can expect longer delivery times. This shortage is also fueling inflation induced by the “scarcity” of available products and by soaring shipping costs (the composite index of Drewry which measures the cost of transporting containers has tripled between 2021 and 2021.[3]

However, the trend of some indicators seems to be reversing. In particular, maritime transport prices have fallen by 60% over one year, bringing the average cost of a maritime container below 4000 Dollars (which is still very expensive). Moreover, the semiconductor market is only expected to grow by 7.4% in 2022, almost half of what was initially forecast before experiencing a decline in 2023, due to falling PC sales and smartphones, despite growth in the data center and automotive segments.[4]

After having experienced an explosion in demand (+26.3% in 2021 during the pandemic linked to Covid-19), we can see in this year 2022 a slowdown in sales of smartphones and PCs. Inflation, the rise in taxes and interest rates as well as the increase in the cost of energy and fuel affect the disposable income of customers who reduce their purchases, particularly of electronic products. Laptop sales are expected to fall 13.1% in 2022 compared to 2021 leading to an estimated 5.4% decline in semiconductor sales in 2022. Smartphone demand also tends to slow with only growth of 3.1% in 2022 against +24.5% in 20214

The semiconductor market is therefore entering a bearish industrial cycle which will have the effect of shortening supply times and seeing prices gradually decline.


While demand for semiconductors used to manufacture chips for computers and smartphones is declining, demand remains strong for “data centers” due to continued investment in the cloud.

Similarly, the development of electric and autonomous vehicles necessarily leading to greater use of on-board computing will support the demand for semiconductors intended for the automotive industry.
The return to a “normalized” situation remains largely dependent on the gradual recovery of semiconductor production in Asia. This has still not regained its pre-Covid rhythm due to the occasional confinements of Chinese production units. However, the full utilization of installed production capacities will take place in a context of a sharp slowdown in the dynamism of this market and a probable recession in the main economies of the world. Is it relevant in this context to replace private initiative with major institutional plans such as that of the EU? The question deserves at least to be asked.

[1] IDC’s study Worldwide Semiconductor Technology Supply Chain Intelligence – June 8, 2022

[2] Study Semiconductor Industry Association and the Boston Consulting Group – April 2021

[3] Drewry – World Container Index October 6, 2022

[4] Gartner study – July 27, 2022

Article written by:

Pascal Montagnon, Director of the Digital, Data Science and Artificial Intelligence Research Chair – OMNES EDUCATION

Eric Braune, Associate Professor – INSEEC Bachelor

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