In today's Finshots we talk about how Covid may exacerbate the global semiconductor shortage

The Story

There’s a global chip shortage— the kind that affects the production of phones, gaming consoles, and cars. And while we’ve already written about it rather extensively, here’s some context for all the people in a hurry.

Semiconductor chips are hard to produce. If you’re doing it at scale, you probably need to invest billions and wait years before you can expect to see them roll off the assembly line. So you can’t just ramp up supply overnight. You have to be patient. The problem is further compounded by the fact that we only have 3 major companies producing most of the important stuff. So if they can’t get their forecasts right, then the supply crunch will hurt multiple industries at the same time.

That’s the supply side equation.

On the demand side, we’ve been seeing a lot of interest in new electronic products considering most people are now working from home. This further compounded the mismatch in demand and supply giving rise to what is now being heralded as the greatest crisis in the semiconductor industry.

But that’s not just all. We have a bunch of smaller known chip companies who may not necessarily be the big power punchers but are an essential cog in this gargantuan machine. As one article pointed out — a small support chip “tied to basic vehicle functions, such as windshield wiper motors and infotainment features” could put the whole supply chain in jeopardy. You can’t push out a vehicle that doesn’t have a wiper. And when you have no alternatives, you are forced to wait out the crisis.

Which is kind of what is happening right now with King Yuan Electronics — a chip company based out of Taiwan. If you haven’t heard of them, well, join the pack. Because nobody really hears about them. Until something happens to them.

These people are responsible for testing chips. They also do some assembly work, but by and large, they offer back-end support to major chip companies. If they don’t do their job right, you’re going to have phones that don’t work and King Yuan is really the king of testing. According to the company’s website, it is the second-largest firm in terms of testing revenue and the largest professional pure-play testing company worldwide.

Unfortunately, they’ve had to shutter production for two days after several workers contracted Covid. And the company’s management only recently stated that this temporary disruption could reduce their monthly output by about 4–6%. Now bear in mind, a lot of people didn’t think this would ever happen considering Taiwan has had a near stellar record in keeping the pandemic at bay — reporting zero cases for eight months straight. But Covid has its ways and considering chip companies employ migrants who routinely travel in and out of the country, you can see how the near-impenetrable fortress could have been breached. But it also alludes to something else.

As one article points out —

In Zhunan (a township in Taiwan) there is a small shopping mall that is a magnet for the towns around it. King Yuan workers go there to enjoy themselves, and to a large market where they go to buy food. They go out to the same restaurants, stay at the same hotels and shop in the same popular chain stores as the locals. Who hasn’t seen the Sunday trains filled with workers going traveling across Taiwan to meet friends and relatives? Same as the locals…

The migrant worker communities are thus heavily networked and can easily spread the virus from one place in Taiwan to another.

Meaning the entire population could be at risk. Especially considering only 3 % of Taiwan’s 23 million population have been vaccinated. Most of them have only received the first dose. And the migrant population — Well, we don’t know anything about them. What we do know however is that if they don’t manage to curb the spread of Covid, it’s going to impact each one of us in some way or another. Because Taiwan is one of the biggest semiconductor exporters in the world. And if they don’t get things under control, this semiconductor shortage could spiral out of control soon enough.  

Until then…

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