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Global chip supply chain vulnerable to massive disruption

A new study by a U.S. industry group has found that the global chip supply chain has become increasingly vulnerable to natural disasters and geopolitical disruptions as suppliers have become more concentrated in distinct regions.

The report comes amid a global chip shortage that began with overbooked factories in Taiwan late last year, but has since been exacerbated by a factory fire in Japan, a freeze that has cut electricity in the US state of Texas and a worsening drought. in Taiwan this year. The shortage has slowed down some production lines of auto factories in the United States, Europe and Asia.

Modern chip manufacturing involves over a thousand steps and requires complex intellectual property, tools, and chemicals from all over the world. But the Semiconductor Industry Association, which represents most of America’s chipmakers, said Thursday it has found more than 50 places in the supply chain where a single region has more than 65% market share.

Intellectual property and advanced chip design software, for example, is dominated by the United States, while specialty gases essential to chipmaking originate in Europe. And the manufacturing of the most advanced chips is all located in Asia – 92% in Taiwan.

If Taiwan were unable to manufacture chips for a year, it would cost the global electronics industry nearly half a trillion dollars in revenue, according to the report: “The global electronics supply chain would come to a halt.”

Yet, according to the study, a stand-alone approach in which governments attempt to replicate the supply chain at the national level is impractical as it would cost $ 1.2 trillion (around Rs. 87 lakh crores) worldwide – with up to ‘to $ 450 billion (roughly Rs. 32 lakh crore) of that cost in the US alone – which has caused the price of chips to skyrocket.

In some cases, however, he called for incentives to create “minimum viable capacity” in regions lacking any part of the supply chain.

In the case of the United States and Europe, that would mean new advanced chip factories to balance the focus in Taiwan and South Korea.

“We don’t have enough semiconductor manufacturing in the United States … And this needs to be sorted out with the help of the US government,” John Neuffer, chief executive of the association, told Reuters.

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