The Semiconductor Shortage & Potential Litigation

August 6, 2021

Global supply chains have been dealt a destructive blow over the last year and a half, as the pandemic has led to supply crises across industries. One such crisis is the semiconductor chip shortage, which is likely to lead to a plethora of disputes and litigations in the coming years.

This will be a continuing saga as, Intel CEO Pat Gelsinger states to Apple Insider, “The global chip shortage will continue to worsen for the time being, with the industry forecast to endure a worsening situation throughout the second half of 2021, before there’s any real hope of recovery.”

This unexpected shortage was not only triggered by the COVID-19 pandemic but exacerbated by the blockage of the Suez Canal in March of 2021. Now, with many industries dependent on or largely enabled by semiconductors, companies are heavily focused on ensuring crisis management plans account for potential aberrations such as this one.

According to an industry report by Fortune Business Insights, “Since the onset of COVID-19 in early 2020, the industry has been facing several challenges to maintain stable growth. The entire technology industry is trying to recover from the US-China trade war and 2019’s down cycle. The international Data Corporation (IDC) estimated a revenue contraction of approximately 6% in 2020 (with 54% of probability) for the global semiconductor industry over the forecast period.” This report confirms the setback imposed on the semiconductor industry by the pandemic.

Let’s take a more granular look at a few specific industries impacted by the semiconductor shortage.

The Auto Industry

A lion’s share of articles on the shortage note its impact on the auto industry. The crisis started early on when automobile manufacturers cut orders, which proved disastrous when car sales improved earlier than expected, but their semiconductor suppliers had already committed production to other customers.

This sent a massive supply shock through the automobile industry, as the modern car averages between 1,500 and 3,000 chips. This number is only increasing with innovation, and now businesses are strategizing on ways to avoid an analogous situation in the future. One such strategy is the mass acquisition of small-cost items such as chips that could halt production should they not be available. As supply chains are now weakened, maintaining a large inventory of these items could be an effective approach in the future.

Consumer Goods

Semiconductor chips are now commonplace across several household appliances and consumer goods, with low-margin processors being more utilized now than ever before. These processors are used in washing machines, toasters, microwave ovens, and much more. The supply shortage on these chips will likely be felt more severely over the next several months, as retailers are expecting to face challenges maintaining their inventory of these products. In some instances, this is resulting in the seeking of new suppliers or retailers being forced to pay higher costs. Some companies are increasing their inventory of highly sought-after chips, which is helpful for their own bottom line, but harmful for others looking to get a hold of their required supply.

Smartphone Manufacturers

Thanks to the stockpiling of semiconductors, smartphone manufacturers such as Samsung and Apple have mostly avoided the shortage of chips. While auto manufacturers made requests to reduce deliveries early on in 2020, smartphone manufacturers did not experience a significant drop in demand or request a reduction in deliveries. This allowed manufacturers to skirt the issue until now.

With manufacturers across other industries beginning to reclaim their orders, competition has significantly increased, and mobile manufactures are beginning to feel the impact. Apple CEO, Tim Cook, released a warning recently regarding this crisis’s impact on popular products like the iPhone and iPad. The shortage is not impacting the high-powered processors that are manufactured by Apple, but rather the smaller chips that execute functions such as decoding audio or powering mobile displays. Tim warns that supply shortages will have an effect on sales, and even industry titans like Apple are vulnerable.

The Impact on Litigation

While this semiconductor shortage has yet to manifest itself in the form of significant litigation, we do expect disputes to arise as a result of the supply shock. Manufacturers are struggling to locate the components that they need at a price they can afford, and this challenge leaves suppliers susceptible to litigation.

Among anticipated areas of litigation, are payment delays and contract disputes. With many experts predicting that supply will be impacted until 2022, we will undoubtedly see companies using force majeure, price escalation, termination, and other contract terms to mitigate the damage done by the supply shortage.

For those that are unfamiliar with Round Table Group, for more than 25 years, we have helped litigators to locate, evaluate, and employ the best and most qualified expert witnesses. Round Table Group is a great complement to any litigator’s quest for an expert witness and our search is always free of charge. Contact us at 202-908-4500 for more information or start your expert search now.

Share This Post

Subscribe to Around The Table

Share This Post

Find more posts like this:

Expert Witness Search, Expert Witness Selection, Supply Chain, Technology, Transportation

Automotive Expert Witness Referral

2.7% of the U.S. gross domestic product can be attributed to the automotive industry, which employs about 17.9 million individuals. Our automotive expert witnesses, speakers, and consultants include scholars, mechanical and chemical engineers, researchers, inventors, and veterans of the automotive industry with knowledge in a broad range of topics.

Computer Expert Witness Referral

Computers have revolutionized nearly every field of expertise allowing practitioners to gather, organize, visualize, assess, and act on data as never before — each of these developments becoming its own industry. Our computer experts have been retained due to their deep knowledge and experience working as electrical engineers, software engineers, programmers, professors, IP consultants, and more.

Semiconductor Expert Witness Referral

Inside every computer, cell phone, iPod, and GPS are chips, which contain many semiconductors, solid substances that under certain conditions will conduct electricity. Semiconductors are often made of gallium arsenide, gallium nitride, lithium fluoride, or (most common because it’s cheapest) Silicon.

Supply Chain Expert Witness Referral

When consumers purchase goods, they rarely consider the supply chain behind those products. Supply chains start with vendors who provide raw materials to the producers, who manufacture the products. The manufactured goods are sent to warehouses where they are stored until they are sent to distribution centers. From the distribution center the goods are sent to retailers. Without supply chains manufacturers would not be able to compete with one another or give customers what they want.

Technology Expert Witness Referral

Technology is the use of science or knowledge to solve problems or invent useful tools. The advantages of modern technology are easy access to information, promotes creativity and invention, improve communication, productivity, and efficiency. Mechanical technology includes wheels, levers, gears, engines, and belts. Electronic technology like computers and washing machines use electricity to accomplish a goal. Industrial and Manufacture technology is used to create a product. For instance, robots used to manufacture automobiles. Medical technology like MRIs and ventilators help diagnose, prevent and treat disease.

Transportation Expert Witness Referral

Transportation is the movement of people and goods from one place to another by a vehicle or vehicles. Air, land, and sea are the three modes of transportation, which are important to economic growth and globalization.