Semiconductors are a critical building block in today’s 5G-driven digital age. In its second year and since the height of the pandemic in 2020, the ongoing global shortage has adversely affected the inventories of smartphones and IoT devices and impacted revenue for telecom operators.
Based on Gartner’s forecast, mobile phone sales will decline 7.1% this year, with Gartner correcting its earlier projection that mobile phone sales would grow by 2.2%.
Given the current shortage, SK Telecom recently launched Sapeon, a semiconductor company that provides for growing ventures in artificial intelligence services. According to Statista, the AI semiconductor market is expected to reach $70.9 billion in 2026, increasing from $10.9 billion in 2021.
Sapeon’s CEO, Soo-jung Ryu, shared that the company aims to sell to data centers and big tech players in the US and Europe.
"We would like to test case the SAPEON chip in multi-access edge computing and we see telecom operators like Deutsche Telekom AG as possible partners to collaborate [with] in Europe," Ryu said.
Inevitably, the current chip shortage of semiconductors has seemingly become the bargaining “chip”, exacerbated by growing geo-political tension between China and the US. Other political factors have aggravated the global situation, resulting in smartphone shipments dipping in the second quarter of this year – the fourth consecutive quarter of slippage.
At the epicenter of this crisis is Taiwan, a leader in manufacturing semiconductors. Taiwan-based TSMC, for instance, contributes to about 64% of the global semiconductor market. Given that an assortment of 4G and 5G network equipment – including routers, base stations and backhaul infrastructure – requires semiconductors, such a shortage can derail network expansion plans for telecom operators worldwide.
One of the countries affected by this is India. Figures by the Indian Cellular and Electronics Association (ICEA) revealed that Taiwan’s foundries provide more than 75% of the chips used in mobile devices made in India – the biggest smartphones. Given the volatile global supply chain for chips, the country has rolled out an “India Semiconductor Mission” plan to launch semiconductor and display fab manufacturing to cater to and become self-sufficient in coping with present and future demands, which are expected to escalate when the country embarks on 5G services.
Ashwini Vaishnav, India’s minister of electronics and IT has remarked that “India will need at least 10 semiconductor fabrication units in the coming years and the government is ready to invest in several more projects.” There are also plans to turn India into a global manufacturing hub for chips.
New US Law Threatens to Add Woes to Global Chip Supplies
In mid-August, the China Semiconductor Industry Association (CSIA), a state-backed trade group, called out the US Chips and Science Act as a violation of fair trade that could potentially upset supply chains worldwide.
The new law called the “Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022” is meant to deter foreign investments in advanced chip-making technologies in China, with the provision of $52.7 billion in subsidies over the next 5 years to attract semiconductor manufacturing to the US. The new law also includes a 25% investment tax credit for chip plants worth an estimated $24 billion over the next decade.
This new law has since received backlash from the CSIA, as the group claims that this new US law violates “fair, open and non-discriminatory practices in the industry”. In a statement, CSIA said that this would harm the spirit of the World Semiconductor Council’s charter and that of the World Trade Organization’s as well.
As the largest semiconductor market in the world, China is facing unprecedented demand from industries, including automotive, and is increasing its semiconductor imports to meet the domestic shortfall. According to official data, China’s IC production reached 27.2 billion units, representing a 16.6% decline year-on-year.
However, there appears to be some respite soon regarding the situation. Data from the Semiconductor Industry Association (SIA) revealed that global chip sales in June slumped by 18% from May, marking six consecutive months of decline. This could be an indication that demand for chips is easing.
South Korea, being the largest producer of memory chips in the world, also reported slower chip exports for the fourth consecutive month in July. Regardless, semiconductors will continue to be contested between countries. Instead of alienating countries from resources, it might be a wiser decision to rally together, pool resources and secure demand for these all-important chips.