Since the early months of the pandemic, many companies have highlighted their concerns about the problem. Demand for chips is in short supply, and many carmakers and consumer electronics companies around the world have said production will be affected.
"This unforeseen situation is not expected to improve soon and supply constraints are likely to persist until 2023. While the company is working hard to increase capacity, the problem may worsen before a solution is reached."
Pat Gelsinger, Intel's chief executive, warned recently that the worst was yet to come. He told the BBC it would be "a year or two" before supplies returned to normal.
While solving the problem is not impossible, it will be a difficult and long-term task.
What is causing the semiconductor shortage?
A semiconductor or chip has properties intermediate between a conductor and an insulator. They are typically made of silicon and are used to power a variety of devices -- such as cars, laptops, smartphones, home appliances and game consoles -- typical application scenarios.
These tiny objects perform many functions, such as powering displays and transmitting data. As a result, tight supply will have an impact on sales of cars, refrigerators, laptops, televisions and other electronic devices.
But chip-making capacity cannot be added in a short time. As a Bloomberg report points out, making chips is a complex process that takes months.
"Making chips typically takes more than three months and involves large factories, clean rooms, multimillion-dollar machines, tin-melts and lasers," the report said.
Taiwan Semiconductor Manufacturing Company (TSMC) is the world's largest contract chipmaker, and its customers include Qualcomm, Nivdia and Apple. It owns 56% of the contract manufacturing business that makes chips.
Sales of electronic equipment surged during the pandemic, creating a huge demand for semiconductors. But COVID-19 is not the only factor behind the shortage.
Tensions between the United States and China are also a factor, as many American companies do business with Chinese companies. Huawei, for example, which supplies US chipmakers, is blacklisted by the US government.
Kissinger stressed the need to "normalize" relations with China. Because it takes time to build a factory, he added.
How serious is the problem?
It takes a long time for chip makers to catch up with demand because they can't do it overnight.
A Gartner report released in May estimated that chip shortages in all types of devices could continue through the second quarter of 2022.
Kanishka Chauhan, principal research analyst at Gartner, said: "Semiconductor shortages will severely disrupt supply chains and limit production of many electronic device types in 2021. Foundries are raising wafer prices and, in turn, chip companies are raising prices."
Chip lead times, or the time between ordering a semiconductor and delivering it, rose to a record 21 weeks in August from six weeks in July, according to a Bloomberg report.
Some top auto parts suppliers told Moneycontrol that semiconductor shortages will ease starting in January 2022. Vikram Mohan, managing director of Pricol, a coimbato-based tier-one parts maker, said the supply squeeze worsened at the start of the year.
"Starting in January 2021, the problem will only get worse. Right now, we're probably at the peak in terms of shortages and lost production. We think the second and third quarters will be very difficult for the industry. We believe the pressure will ease from January, with further easing in August and September next year, "Mohan said.
Car production has been hit
A shortage of semiconductors has forced some domestic and global automakers to reduce and/or temporarily halt production. Adding to the car industry's troubles. The industry has already been hurt by disruptions caused by COVID-19. The resulting production disruptions will only delay the industry's recovery.
Wholesale car volumes in India fell 11 per cent in August from a year earlier, according to the Society of Indian Automobile Manufacturers (SIAM).
Maruti Suzuki, India's largest carmaker, will cut production by 60 per cent in September because of semiconductor shortages.
Mahindra and Mahindra M&M said it will cut production by 20 to 25 percent in September because of semiconductor shortages. The automaker will observe seven "no-production days" at its auto plants this month.
Kenichi Ayukawa, president of SIAM, said recently that while the chip shortage is challenging, it does present an opportunity for the Indian auto industry.
Mr Ayukawa is also managing director and CHIEF executive of Maruti Suzuki India.
"While the semiconductor shortage seems to be a challenge, it also presents opportunities. Semiconductor manufacturing, of course, requires very large investments. India's auto industry alone does not guarantee the complete viability of such semiconductor investments. Therefore, there is a need for cross-sector integration, "Ayukawa said, as quoted by PTI.
A shortage of semiconductors is likely to affect sales during the upcoming Festival in India.
Electric vehicle (EV) maker Tesla announced in August that it was developing a "Dojo" chip for training artificial intelligence networks in data centers. Tesla CEO Elon Musk has said Dojo chips should be ready for use next year.
It remains to be seen whether other automakers will eventually develop and/or build their own chips.
Impact on the production of electronic products
Production of laptops, tablets, smartphones and other electronic devices has also been hurt by semiconductor shortages.
On an earnings call with analysts, Apple CEO Tim Cook said, "Supply constraints will hurt iPad and iPhone sales. Mr Cook said the shortage was not in high-performance processors but in "legacy nodes" -- chips that perform functions such as driving displays or decoding audio that can be made using older equipment.
Daisy Chittilapilly, the new president of Cisco India and SaAN, recently told Moneycontrol that the chip shortage problem is "very real".
"We were one of the first companies to start sounding the alarm at the beginning of the year, saying the semiconductor problem was very real and it was going to take us a while to get out of it," Chittilapilly said.
"We were very transparent with our partners and customers that we were in trouble. So the industry is in trouble because of this issue, "she said.
Samsung Group, South Korea's largest conglomerate, said in August it would invest 240 trillion won ($206 billion) over the next three years to expand its presence in biopharmaceutical, artificial intelligence, semiconductors and robotics.
The company also talked about the importance of the chip industry in South Korea's economy.
In a statement, Samsung said: "The chip industry is the safety board of the Korean economy... In a sense, our aggressive investment is a survival strategy, and once we lose competitiveness, it's almost impossible to come back."
Many tech companies have started developing their own chips, a move that could not only ease immediate supply concerns but could also help the industry in the long run. Apple is using its own M1 chips in its new ipads and Macs. A report from Nikkei Asia suggests that Google is developing its own CPU that will be used in its Chromebook laptops starting in 2023.
The government came to the rescue
Chip shortages are now a topic of conversation not only between companies and governments, but also among world leaders. Western countries have spoken of the need to shift manufacturing to their own countries and become self-reliant.
On Sept. 23, Prime Minister Narendra Modi met with Cristiano Amon, the chief executive of Qualcomm, who was visiting the United States. They discussed 5G, vRAN, digital transformation and the importance of semiconductors and reliable geographically diversified supply chains, Amon tweeted.
A statement from the Prime Minister's office said they discussed investment opportunities in India's telecommunications and electronics sectors, including production-related incentive Scheme (PLI) schemes. PM Modi and Amon also talked about the development of semiconductor supply chain in India.
The Ministry of Electronics and Information Technology (MeITy) has developed a Manufacturing Promotion Program (SPECS) for electronic components and semiconductors.
In the United States, the Biden administration's $2 trillion infrastructure investment plan includes $50 billion for the semiconductor industry.
President Joe Biden met in April with the ceos of AT&T, Dell, Ford, General Motors, Stellantis(formerly Fiat Chrysler), Intel, Northrop Grumman and others. He stressed the need for the U.S. government to promote investment in the industry to maintain a competitive edge.
The South Korean government announced a massive $451 billion investment to help companies boost semiconductor production.