In the last year, the demand for technology has increased exponentially. Due to the pandemic of Covid-19, many industries have moved towards remote working, and learning institutions have become digitalized. The pandemic has changed the living standards entirely.

The demand for refurbished processors, hard drives, RAM, and other accessories has goosed an unorthodox fashion. However, one specific part that does not get enough attention and importance when talking about technology chips. The lowly chip is an integral part of all electronic devices.

Chip is an invention that is about six decades old and is the workhorse for powerful computers alongside being the most essential and expensive component in our daily-used gadgets. Therefore, the incredible increase in demand for them and the shortage has left individuals in shock.

The shortage of chip fabrication is caused by reducing silicon output from China, as it is the largest producer of high-purity silicon. Nevertheless, before digging deep into the effects, it's best to understand what silicon is and what part it plays in the high fabrication cost of chips around the globe.

What is Silicon?

You might remember silicon as the 14th element in the periodic table and is a metalloid. This means that it contains properties of metals along with non-metals as well. It is the second most abundant element found on the earth's crust after oxygen.

How Do China's Reduced Silicon Output Effect Chip Fabrication Costs?

Silicon is required for the fabrication of chips and other components. China is the largest manufacturer of silicon, or it used to be. China has recently reduced its silicon output in an effort to reduce energy consumption. Along with the increasing demand of the smartphone and computer industry, chip fabrication costs have increased more than ever before.

The scarcity of the world's second abundant metal has threatened everything from cars to computer chips. It has indeed thrown another hurdle for the world's economy. A production cut in china has increased the prices of silicon by 300% in the last few months. The prices are estimated to stay this way until the mid of year 2022.

Silicon is by far one of humanity's most diverse building blocks, and even though China has taken the initiative to reduce power consumption, most industries can't withstand the impact.

China's initiative to reduce silicon output in order to preserve energy consumption is undoubtedly the leading cause for a significant increase in the fabrication cost of chips. However, there are multiple reasons as well. Here are some of the reasons for a higher chip fabrication cost in the market.

1. The Impact of the Pandemics:

During the pandemic, the overall demand for memory chips and microcontrollers to sophisticated, high-performance refurbished processors has increased drastically in the past decade. Everything from smartphone usage to computing has increased considerably.

Such a boom in the technology industry was mainly because organizations had shifted to remote work, and the term "Work-from-home" was introduced. At the same time, educational institutions evolved towards digital studies and e-learning. Hence, the need for smartphones and computers emerged drastically, creating a massive demand for chips.

2. Making Things Smarter:

Everything from cars and electronic products was evolving and made smarter. Smart cars require chips to control everything from displays to in-car systems. The reduction of silicon output from China has forced manufacturers to increase the prices of smart cars and other mechanical or electronic products that require chips to work.

The silicon purification process is a complicated one, and with China out of the picture, only a few players are left in the game. Over the year's chip-making has been a good source of sales for many companies. Still, with the shortage of silicon and high-demand manufacturing, complex chipsets are not easy even after increasing the prices.

The pandemic also created uncertainty in the orders for chip manufacturers, which is one of the main reasons car manufacturers had to halt production by the year 2021. It was the main reason why Xboxes and PlayStation are significantly difficult to find in stores.

3. Chip Fabrication:

Chip fabrication is one of the complicated procedures requiring high-purity silicon, which is reduced due to China's effort to reduce power consumption. Silicon production also requires resources that most countries lack.

Reduction in silicon output increases the cost of chip fabrication and creates a shortage that can hinder the economy of the world. One of the most expensive and complex pieces of silicon are logic chips from Apple, NVidia, or Qualcomm.

Logic chips are one of the most important components, as they provide computers and smartphones with their intelligence, but these companies don't operate on their own. These companies design semiconductors but don't have their fabrication plants. Fabrication takes place at even advanced factories known as Foundries. These Foundries are responsible for producing the design for these giant companies.

Conclusive Thoughts:

China has played an integral role as the largest silicon supplier over the years. Still, with the sudden reduction of silicon output, the entire digital economy has a fear of collapsing. China has made it clear to reduce silicon output to play a part in decreasing energy consumption, but the real question is, "Is it worth it?"

Due to the factors mentioned above, such as the rise in demand for technology because of the pandemic and scarcity of resources for silicon production. China's energy reduction, the chip fabrication cost is increasing exponentially. Over the past few months, the chip fabrication costs have increased to a ridiculous 300% that might be enough to bring the economy down.

At the current time, the need for refurbished processors, Memory Chips, and smart innovations is more than ever before. It may be a challenge for the economy to withstand such an enormous impact. Chips are an essential component of digital computing. Due to the lack of silicon production, the digital era may move a few steps backward instead of progressing forward.