The year when everyone remembered that chips matter

The most important This year’s technology was not Mark Zuckerberg’s Metaverse, Jack Dorsey’s blockchain or Elon Musk’s, err, dancing robot.

It was more likely the same that has driven progress in the technology industry for decades. The one that lets machines juggle and manipulate information, faster and more efficiently every year. It’s of course the silicon chip.

The importance of semiconductors may have disappeared over the past decade as the Internet, social media, and apps came to the fore. Silicon Valley is without a doubt now more synonymous with Google’s inevitable web search, Amazon’s e-commerce empire or Facebook’s FOMO – powered feed than with Intel’s latest chip. But the past year has provided plenty of evidence that chips are actually more important than ever.

Rising demand for chips from new types of customers combined with the pandemic and geopolitical tensions puts extraordinary pressure on the supply of both simple and advanced computer processors in 2021, resulting in a shortage of everything from cars to game consoles. Control over the production of advanced silicon shapes competition and conflict between the world’s two dominant superpowers. And many governments are willing to pour huge sums into strengthening their production capacity.

Custom chip designs are fast becoming more and more crucial for new areas such as artificial intelligence, self-driving cars and 5G. These specialized architectures, rather than chips for general purposes, will help shape the course of innovation.

“There really is nothing humble about the silicon chip,” says J├ęsus del Alamo, a professor at MIT who teaches advanced microelectronics courses. “They are the core of everything and do so many critical things in so many valuable places with incredible benefits to society.”

Del Alamo notes that chips are now found in a confusing array of products, making kitchen appliances, industrial appliances and even objects as mundane as light bulbs connected and programmable.

The pandemic quickly revealed how vital chips have become for the economy. When automakers closed factories in early 2020, in anticipation of an economic downturn, they canceled orders for cheap chips that were increasingly needed in engines, safety systems and infotainment screens. Even the most basic gas-powered car now has over 100 chips, while the latest electric vehicle can accommodate more than 1,000. When car purchases came unexpectedly, manufacturers did not have enough silicon and were forced to stop production, dampening the economic recovery in many nations.

The computerization of everything from industrial robots to medical equipment meant that the chip shortage could be felt far and wide. Meanwhile, the enormous cost of building new chip plants and the cyclical nature of the industry have caused the drought to drag on … and by. “Companies that viewed chips as just another item on a bill now realize the relevance of semiconductors,” said Gaurav Gupta, vice president at Gartner, an electronics research firm that tracks electronics. “Now everyone needs to focus on and strategize semiconductor procurement.”

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The chip crunch has been exacerbated by tensions between the US and China. The Trump administration prevented the sale of the most advanced computer chips – those that power the latest smartphones or cloud servers – to Chinese companies accused of having close ties to the government or of having helped with human rights violations by Muslims in Xinjiang province.

The blockade that the Biden administration has put in place also reflects an awareness that these chips are crucial to advances in areas such as AI, 5G and robotics, which are increasingly seen as the key to economic and military competition. And because China lacks the capacity to manufacture the most advanced chips for itself, leading technology companies like Huawei, which once led the world in smartphone sales, have seen part of their business crippled. Some Chinese companies reportedly stockpiled chips in anticipation of the ban and stretched the available supplies further.

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