The global semiconductor shortage has persisted since 2020, with lingering effects in various industries. While the United Kingdom has largely recovered from COVID-era shipping disruptions and material scarcity, its supply woes are not over yet – another shortage may emerge in 2025.
Zac Amos, Contributing Writer, further explores.
Why another semiconductor shortage is likely
Although the global electronics industry has only just recovered from the last global semiconductor shortage, another is already on the horizon. Unfortunately, market recovery does not equate to market resilience. Given the recent uptick in rare Earth element scarcity, the impending shortage may be much closer than many industry professionals expect.
According to Eurostat, Europe heavily depended on Chinese imports of rare Earth elements in 2023. For instance, approximately 79% of gallium came from China that year. Now, China has imposed export restrictions.
China’s export controls have more than doubled the cost of some critical elements. For instance, the cost of germanium went from £945 per kilogram in the first quarter of 2023 to £2,050 per kilogram in the second quarter of 2024 – a 115% increase in just over a year.
Without resilience within extended supply networks, delays are inevitable. Even with proper diversification, rising prices will skew supply and demand, exacerbating inventory constraints.
Supply challenges contributing to another shortage
Other than material scarcity and rising prices, several other noteworthy contributors exist.
Geopolitical issues facilitate material scarcity
Export bans, wars and contested elections have contributed to economic instability. Around 45% of small to midsize companies in the U.K., Australia, France, Germany and the United States cite inflation as their primary worry. Another 33% state a recession as their main concern.
Procurement issues cause fabrication delays
Amid export bans and economic instability, many fabrication facilities have experienced delays. Even with the European Chips Act, progress at various Open European Union Foundries has stalled and construction for some microchip manufacturing facilities has halted.
Intel put plans for new factories in Poland and Germany on hold following £1.26 billion in losses in the second quarter of 2024. Despite announcing a £66.23 billion investment in European facilities, its financial woes may make progress impossible.
Every delay pushes supply chain resilience further and further out. Facilities that were supposed to become operational in 2027 may not begin producing chips until 2030. In Intel’s case, development may be delayed indefinitely.
Scarcity concerns prompt firms to overstock
Interestingly, the looming semiconductor shortage may be partially driven by fears of scarcity. Companies double-ordering materials to bolster inventory could contribute to future shortages, according to the Institute of Electrical and Electronics Engineers.
This phenomenon is already happening. The tech giant NVIDIA reportedly paid hundreds of millions of pounds to SK Hynix and Micron to secure a steady supply of components amid stock concerns. Each received between £385 million and £550 million in advance payments.
Demand fluctuations exacerbate chokepoints
Increased investments in Cloud computing and artificial intelligence technologies have driven demand for next-generation chips, causing unexpected shortages – and new critical dependencies – in some segments of the semiconductor supply chain.
Opportunities to proactively address the shortage
Although another semiconductor shortage may be inevitable, European enterprises have time to increase resiliency within their supply networks. While the E.U. holds approximately 10% of the global market share for semiconductor production, the European Commission hopes the European Chips Act’s £35.6 billion in funding will double the country’s share of the worldwide chip market by 2030.
Amid rising prices, that figure may not be enough. Fortunately, the European Commission has discussed a follow-up to the European Chips Act. Ideally, the Chips Act 2.0 would encompass legacy and foundational semiconductors.
Diversification is also necessary. According to a study commissioned by the U.K. Department for Science, Innovation & Technology in 2023, dedicated semiconductor firms have secured £1.7 billion in fundraisings and grants, 70% of which has gone to just five recipients.
Relying on a handful of chipmakers will not necessarily end in disaster, but it increases the risk of disruption-induced downtime. Diversification – mainly through nearshoring or reshoring – presents a simple, achievable opportunity to increase resilience against scarcity and delays. In 2023, 45% of executives agreed diversification was their primary supply chain strategy, meaning 55% do not consider it a priority.
Above all else, decision-makers should consider implementing modern technological solutions. Tools like predictive analytics and intelligent robotics could enable demand forecasting and supplement the workforce.
Firms should act like a 2025 shortage is inevitable
While a semiconductor shortage in 2025 is likely, it is not guaranteed. Despite this, chipmakers and procurement brands should act like it is inevitable. Proactive preparation is essential for maintaining revenue and meeting customer demand in a volatile market.
