The Five Biggest Disruptions to the Semiconductor Supply Chain in 2024

Semiconductors have one of the most complex, multifaceted supply chains of any industry in the world. The sector relies on expertise that can’t be easily duplicated, sophisticated manufacturing facilities that take years and billions of investment dollars to build, and unique geographic specialization across Asia, North America, and Europe. 

As any procurement professional can tell you, supply chain intricacies like those come with inherent vulnerabilities. And when disruptions play on those vulnerabilities, the impact can be profound. 

The COVID-19 pandemic offered such a lesson in the semiconductor supply chain’s fragilities. As the coronavirus spread and triggered a spike in consumer spending, the demand for semiconductors surged. But sweeping lockdowns in Asia and Europe in 2020 and 2021 caused significant labor shortages that left fabs, assembly sites, and other chip facilities severely understaffed or forced to halt production altogether. 

As if that weren’t enough, a series of subsequent disruptions—including a historic drought in Taiwan and the Russian invasion of Ukraine—perpetuated the existing chip shortage. It took three difficult years, but the global supply finally stabilized near the end of 2023. That the industry is finally able to meet demand, however, hardly means that the semiconductor supply chain is now free of pitfalls. 

We are now entering a new, post-pandemic era, one that presents a landscape of risk combining longstanding threats with more novel hazards that reflect broader contemporary issues. The emerging themes of disruption in 2024 and beyond include climate change and the extreme weather events it unleashes, evolving geopolitical dynamics and their regulatory ramifications, and single points of failure that can sabotage manufacturing with a single fire, flood, or facility stoppage. 

We are now entering a new, post-pandemic era, one that presents a landscape of risk combining longstanding threats with more novel hazards that reflect broader contemporary issues.

Natural Disasters Striking Global Chokepoints 

Traditionally, strategic sourcing and procurement professionals don’t perceive natural disasters to be among the greatest threats to the semiconductor supply chain. But a changing climate and the catastrophic weather events it contributes to are forcing them to check their conventional wisdom and reassess longstanding hierarchies of risk. 

The sixth edition of the United Nations Office for Disaster Risk Reduction’s (UNDRR) Global Assessment Report on Disaster Risk Reduction put the accelerating frequency of such disasters in the starkest, most incontrovertible terms possible. The report found that between 1970 and 2000, there were an average of 90-100 “large-scale disasters” per year. Over the two decades that followed, though, that figure shot up to a range of 350 to 500. Worse still, the UNDRR projects that these natural disasters—which include earthquakes, tsunamis, and extreme weather events—have the potential to climb to 560 annually by 2030. 

The UNDRR projects that these natural disasters—which include earthquakes, tsunamis, and extreme weather events—have the potential to climb to 560 annually by 2030. 

The rapid uptick in natural disasters and extreme weather events all over the world is already having a significant impact on the semiconductor supply chain. Over the past several years, Taiwan has confronted a succession of crippling droughts that have forced Taiwan Semiconductor Manufacturing Company (TSMC)—which uses roughly 150,000 tons of water a day—to implement a series of desperate measures to keep their production whole and fend off factory shutdowns. The world-leading fab started shipping water to its manufacturing facilities by the truckload, and in 2022 it opened its own water treatment plant in the city of Hsinchu to help offset the country’s water restrictions. 

From the 2021 typhoon in Malaysia to the recent earthquakes in Japan and Taiwan, there are a plethora of other recent examples of how natural disasters and climate-related weather events are striking key operational bottlenecks for the semiconductor industry. And after deemphasizing their significance for years, executives and managers working along the global semiconductor supply chain are finally acknowledging the growing threat these catastrophes pose to their operational continuity. In 2023, the multinational insurance company WTW surveyed CEOs and other senior decision-makers at a number of large semiconductor firms. The company found that over half of respondents cited climate change and other environmental factors as being among the “global trends having the greatest influence on supply chain risks.”

Obsolescence Risks 

Several of the current most prominent sources of disruption to the semiconductor supply chain—including an escalatory trade conflict with a rival superpower and the expanding frequency of extreme weather—are contemporary risks that have only emerged more recently. The specter of component obsolescence, conversely, has loomed over chipmakers since the industry’s founding. But while it’s true that electronic parts have been going obsolete since the field’s ascendance in the 1950s and 60s, the lifecycles of semiconductors have also been gradually diminishing over the past few decades. 

As consumers, electronics manufacturers, and other corporate customers continue to demand more advanced capabilities and competition intensifies between premier chip firms to reach the next leading edge, the longevity of individual generations has narrowed. To put it in perspective: the average lifecycle of a semiconductor in 1970 was projected to be about 30 years. By 2014, the typical lifecycle had shrunk to a mere decade. The upshot of these shorter lifecycles is, of course, an increase in component obsolescence and corresponding end-of-life (EOL) notices from suppliers. 

According to Z2Data’s obsolescence report—Obsolescence Trends in 2024 and Strategies to Mitigate Them—2023 saw a total of around 474,000 parts reach EOL. While nearly half-a-million EOLs is certainly a significant figure, it actually represented a marked decrease from the pandemic era. (In 2021 and 2022, the industry saw 529,000 and 756,000 parts, respectively, reach obsolescence.) 

Sourcing and procurement professionals interested in maintaining resilience in the face of EOL notices and their knock-on effects on manufacturing can utilize several risk mitigation measures. These include consistently employing multi-sourcing practices, establishing lifecycle forecasting for key parts, and developing a nuanced understanding of the obsolescence landscape. (Our report, for example, features comprehensive breakdowns and analysis of obsolescence trends for microcontrollers, dynamic random-access memory (DRAM), and other specific components.)

That hundreds of thousands of electronic parts reach obsolescence every year may be perplexing to outsiders looking in on the industry. But those seemingly excessive figures are actually a fitting representation of a dynamic, ever-evolving field powering global industries that pivot on aggressive innovation and relentless advancement. Strategic sourcing teams that want to maintain operational agility and steer clear of costly production delays and product redesigns need to be implementing sufficient risk management measures to minimize the impact of obsolescence. 

Factory Shutdowns 

The chip industry relies on the continuous operations of its manufacturing facilities—including fabs, packaging sites, and IC assembly factories. Anything that directly affects these production centers is going to send out ripples across the semiconductor supply chain. Because of this, factory shutdowns have long been arguably the chief source of disruption for chipmakers.  

Fires at factories are among the most prevalent causes of these shutdowns.

Fires at factories are among the most prevalent causes of these shutdowns. Due to the flammable properties in many of the materials used in the semiconductor manufacturing process—including combustible plastics and explosive chemicals—and the steady flow of high-voltage electricity these facilities need to operate, factories are at uniquely high risk of suffering destructive blazes. In just the past few years, extensive fires at plants owned by Renesas Electronics, ASML, and Wuxi Welnew have compromised production and triggered larger supply chain disruptions that reverberated through the semiconductor, electronics, and automotive industries. 

In just the past few years, extensive fires at plants owned by Renesas Electronics, ASML, and Wuxi Welnew have compromised production and triggered larger supply chain disruptions that reverberated through the semiconductor, electronics, and automotive industries. 

While these damaging conflagrations may grab the most headlines and provoke the most anxious hand-wringing in the chip industry, they’re hardly the only cause of factory shutdowns. Labor strikes, on-site accidents, and worker shortages can all also temporarily shutter sites. 

Vulnerable Shipping Routes

As much as 90% of all goods are transported by sea. That’s a massive figure, and one that speaks to the world economy’s profound reliance on the rivers, canals, seas, and oceans that make up our shared seaborne trade network. Despite the sheer breadth of this web of waterways, the maritime shipping industry is heavily dependent on a handful of critical passages strategically positioned across the globe. And in a world that’s currently besieged by a steady procession of climate-related natural disasters and multilateral armed conflicts, these shipping bottlenecks are becoming increasingly fragile single points of failure. 

The ongoing crisis in the Red Sea vividly illustrates this point. The Red Sea is one of the busiest trade routes in the world, with 20 percent of all container shipping—and 10 percent of total global trade—passing through the narrow, pipe-shaped body of water separating North Africa from the Middle East.

In the weeks after Israel invaded the Gaza Strip, in the fall of 2023, Houthi rebels supported by Iran began targeting commercial shipping vessels traversing the waterway. It was, in the words of one Washington DC think tank, an unprecedented example of a “non-state actor using asymmetric warfare not just to fight conventional armed forces, but to also impose targeted economic sanctions by selectively attacking international shipping.” 

The effects of these improvisational maritime attacks on seaborne trade have been substantial. According to the Center for Strategic and International Studies, traffic through the Suez Canal, which can only be reached via the Red Sea, is down nearly 40 percent in 2024. Passages through the Cape of Good Hope, meanwhile—the primary alternative for commercial vessels rerouted from the Red Sea—are up 70 percent so far this year. The results of this months-long disruption to the global economy are longer shipping times, higher fuel and transportation spend, and a high probability that much of the increased costs are being passed on to consumers all over the world. 

According to the Center for Strategic and International Studies, traffic through the Suez Canal, which can only be reached via the Red Sea, is down nearly 40 percent in 2024.

For semiconductor manufacturing, which relies on sprawling supply chains and the steady flow of material, components, and equipment across multiple continents, prolonged disruptions to crucial maritime passages can hike up costs and negatively impact production. Despite the sector’s market size and criticality to numerous essential industries, chipmakers are highly vulnerable to the conflicts, droughts, and logistical debacles that can obstruct waterways and sabotage international trade. 

For semiconductor manufacturing, which relies on sprawling supply chains and the steady flow of material, components, and equipment across multiple continents, prolonged disruptions to crucial maritime passages can hike up costs and negatively impact production.

Trade Wars, Sanctions, and Export Controls 

The U.S. and China have been involved in a heated, hostile, and highly consequential “chip war” that dates back to at least 2020. The complex, multidimensional trade conflict has a raft of serious implications for the rival countries’ respective economies, militaries, and technological advancement, and may well prove instrumental in determining the world’s geopolitical center of gravity over the next several decades. More obvious but less often discussed, however, is how the succession of export controls and sanctions on semiconductor equipment, technology, and raw materials is impacting the industry itself. 

While many of the long-term effects of the trade conflict will take years to fully materialize, export controls are already disrupting and reshaping manufacturing practices for U.S. chip firms like Nvidia, Intel, and AMD. One U.S. memory chip manufacturer—Micron Technology—is getting whipsawed on both sides of the feud. The firm is not only facing export controls from the U.S., but was also slapped with sanctions by China last year when the government banned companies working on key infrastructure projects in the nation from purchasing hardware from Micron. Last June the manufacturer issued a securities filing saying that the Chinese sanctions could impact a “low double-digit percentage” of its total revenue. 

The New Forces of Disruption

While the industry may have staggered out of the devastating shortages and cascade of crises that defined the COVID-19 years, there’s a crystallizing consensus that the semiconductor supply chain will never return to the pre-pandemic era. The 2020s simply have too many intractable threats, mercurial variables, and force multipliers. These are significant disruptions, too, capable of triggering shutdowns, pushing out lead times, and destabilizing sourcing.

While the industry may have staggered out of the devastating shortages and cascade of crises that defined the COVID-19 years, there’s a crystallizing consensus that the semiconductor supply chain will never return to the pre-pandemic era.

In a supply chain this turbulent and mutable, businesses cannot perceive disruptions as fleeting phenomena to be confronted and addressed on a case-by-case basis. They should be understood, rather, as endemic to the landscape. Disruption today is best understood as a cluster of latent inevitabilities waiting to materialize in the form of a destructive typhoon, a new raft of sanctions, or a bottleneck throttled by geopolitical instability. For an intricate semiconductor industry snaking through a tumultuous world steeped in complex challenges, the bottom line is unavoidable: risks are everywhere.