Ursula von der Leyen

Oil and gas aren’t the only strategic resources

Chip supply is crucial to modern life, says Jason Walsh
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Ursula von der Leyen

1 June 2022

If the Covid-19 pandemic and its attendant lockdowns teach us anything it should be that just because something is digital does not mean it is immaterial.

Our increasingly computerised lives have given rise to a blind spot: the deeply material nature of technology. When futurist Nicholas Negroponte in 1995 wrote in his book Being Digital that we were emerging from a world of atoms into a world of bits he was not wrong: since then much of our lives has been digitised and all kinds of everyday activities are centred on the computation of data. At the same time, though, those numbers are crunched on hardware made of components that are fashioned in industrial processes, processes that start with digging into the ground.

With the exception of oil, commodities are something few of us ever think about. It’s unsurprising, really – few of us in the modern world ever have more than a glancing relationship with most of them. The 2021 timber price shock was a surprise precisely because so many of us have at least some kind of experience with the stuff, but when was the last time any normal person thought about cobalt or nickel?

 

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That has changed. Now, with the Russian invasion of Ukraine, we are all well aware of energy price shocks caused by, among other things, sanctions on Russian gas, and fears are rising about wheat shortages.

Perhaps we should add silicon to our list of essential commodities.

Precedented

In 1988, a RAM shortage caused a dramatic spiking of prices for all kinds of computer, from embedded devices to desktop PCs, servers and game consoles.

Doubtlessly it was a problem and it is remembered for reversing the hitherto seemingly inevitable trend of falling technology prices. Can you imagine the result today, though, when chips of various kinds, from CPUs to memory and more, are found in even the simplest device? And complicated devices, such as cars, today have more chips in them than the local Supermac’s.

The current chip shortage, driven by lockdowns but seriously exacerbated by the ongoing logistics crunch, will probably end in a glut as production and distribution kicks in. In this regard, silicon is not unlike oil and other commodities: production is expensive to start and so the industry is plagued by boom and bust cycles.

Not any time soon, though. Intel chief executive Pat Gelsinger has said he expects the semiconductor industry to suffer supply shortages until 2024 while his counterpart at AMD Lisa Su reckons it will go on at least throughout 2022.

A US Department of Commerce report this year noted that the median inventory of semiconductor products fell from 40 days in 2019 to fewer than five days in 2021.

There is also a significant geo-political dimension to chip supply, and with it an argument that silicon needs to be understood as a strategic issue. Indeed, with much production currently performed in China and Taiwan, questions arise about the potential for future security of supply.

Two weeks ago, European Commission president Ursula von der Leyen (pictured) noted that only 8% of world chip production was in Europe, and she wants this figure to rise to 30% by 2030.

This week, trade body SEMI Europe, urged swift adoption of the European Chips Act.

“Speedy adoption of the European Chips Act will significantly accelerate Europe’s work to attract investments to build up chip manufacturing capacity and R&D,” said Laith Altimime, president of SEMI Europe.

The Act aims to strengthen Europe’s competitiveness and resilience in semiconductor technologies. Frankly, it can’t come soon enough.

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