The Year Everyone Remembered That Chips Matter

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

It was more likely the same thing that has propelled progress in the tech industry for decades. The one that lets machines juggle and manipulate information, faster and more efficiently every year. It is, of course, the silicon chip.

The importance of semiconductors may have faded from view over the last decade as the web, social media, and apps came to the fore. Silicon Valley is arguably now more synonymous with Google’s inescapable web search, Amazon’s ecommerce empire, or Facebook’s FOMO-fueled feed than with Intel’s newest chip. But the past year has provided plenty of evidence that chips are, in fact, more important than ever.

Rising demand for chips from new types of customers combined with the pandemic and geopolitical tensions to put extraordinary pressure on the supply of both simple and advanced computer processors in 2021, resulting in shortages of everything from cars to game consoles. Control over the production of advanced silicon is shaping competition and conflict between the world’s two dominant superpowers. And many governments are set to pour huge sums into bolstering their manufacturing capabilities.

Custom chip designs are rapidly becoming increasingly vital to emerging fields such as artificial intelligence, self-driving cars, and 5G. These specialized architectures, rather than general purpose chips, will help shape the course of innovation.

“There is really nothing humble about the silicon chip,” says Jésus del Alamo, a professor at MIT who teaches courses on advanced microelectronics. “They are at the heart 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 bewildering array of products, making kitchen appliances, industrial machinery, and even objects as mundane as light bulbs connected and programmable.

The pandemic quickly revealed how vital chips have become to the economy. When carmakers shut factories in early 2020, in anticipation of an economic slowdown, they canceled orders for low-cost chips increasingly needed in engines, safety systems, and infotainment displays. Even the most basic gas-powered car now has over 100 chips, while the latest electric vehicle may hold more than 1,000. When car buying recovered unexpectedly, manufacturers didn’t have enough silicon, and were forced to halt production, dampening the economic recovery in many nations.

The computerization of everything from industrial robots to medical devices meant the chip shortage was felt far and wide. Meanwhile, the huge cost of building new chip plants, and the cyclical nature of the industry, has caused the drought to drag on … and on. “Companies that considered chips as just another bullet item on a bill of materials now realize the relevance of semiconductors,” says Gaurav Gupta, a vice president at Gartner, a research firm, who tracks electronics. “Now everyone has to focus on, and strategize, the procurement of semiconductors.”

The chip crunch has been exacerbated by tension between the US and China. The Trump administration barred the sale of the most advanced computer chips—those powering the latest smartphones or cloud servers—to Chinese companies accused of close ties to the government or of aiding in human rights abuses of Muslims in Xinjiang province.

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