Packaging, supply and logistics
told in articles and news clips the world over. In the Italian town of Bergamo, for instance, elderly patients died in corridors for lack of beds. At Huesca, in Spain, nurses posed for photos decked out in robes made from rubbish bags and masks loaned from a private firm nearby. Across the Atlantic, in America, the second half of 2020 saw over 30% of office-based doctors endure a shortage of PPE equipment. Thankfully, this dearth of basic kit has gradually abated over the past year. But if experts in the US government are to be believed, the medical device sector may soon be facing an even bigger threat: a lack of semiconductors. Sometimes dismissed as the purview of nerds and their smartphones, these chips are in fact instrumental in powering countless medical machines, from ultrasound devices to ventilators. If their supply was to run out, these machines, and many others, would be impossible to build. Given there are an estimated 160,000 ventilators in the US alone, it goes without saying that such a situation could certainly presage a medical catastrophe.
Not that industry insiders have been unmoved by the apparent emergency. Indeed, there’s now talk of a fully-fledged ‘industrial strategy’ for semiconductor production, involving the full might of the American government. Yet if supply chain and manufacturing problems have undoubtedly caused a lag in semiconductor availability, overcorrection is a danger too. Given the likely trajectory of chip production, in fact, the United States is arguably in a far stronger position than its Chinese rival. And given our world’s ominous geopolitical instability, some experts even worry that intensive action to fix the semiconductor shortage could actually make the situation worse – with untold consequences for medical devices alongside every other industry.
Chips in a storm It’s difficult to overstate how vital semiconductors are to the medical device industry. If nothing else, this is reflected by the headline numbers. Though it only represents a fraction of overall semiconductor demand, after all, the therapeutic market for chips was worth $5.1bn in 2019, and is expected to enjoy a CAGR of 10.2% between 2021-6. According to another recent study by the Advanced Medical Technology Association, two-thirds of medical device firms claimed to use semiconductors in at least 50% of their products. That figure certainly seems accurate if you focus on specific conditions. As the World Health Organisation (WHO) emphasises, for instance, over 400 million people now suffer from diabetes worldwide, leading to a sharp rise in the need for glucometer chips. Another example comes from the field of psychological
Medical Device Developments /
www.nsmedicaldevices.com
disorders. And now that illnesses like schizophrenia can be partially treated with integrated circuits, the need for semiconductors is increasing here too. And as Robert Lewis says, this need has only become more frantic since the pandemic. “I’m sure the US especially, and the EU, had a panic moment when they realised that a lot of what we might call ‘pandemic response’ had been outsourced.” In other words, suggests the senior international consultant at Chance Bridge Partners, a Chinese law firm, the rush to secure medical kit focused Western minds when it came to semiconductors too.
EU commissioners held a press conference on the European Chips Act in Brussels in February.
“I’m sure the US especially, and the EU, had a panic moment when they realised that a lot of what we might call ‘pandemic response’ had been outsourced.”
Robert Lewis This concern is totally justified – up to a point
anyway. In April 2020, for instance, ventilator manufacturers announced shortages of key semiconductor components, totalling over nine million parts. National governments began making similar noises, with the UK’s Department for Culture, Media and Sport recently announcing an investigation of the country’s semiconductor needs. Naturally, all this begs the question: how do we explain the shortage? As Lewis’s comment implies, part of the answer lies in outsourcing. Taiwan and South Korea have long dominated chip manufacturing, the two East Asian countries together controlling 81% of the global market. With the pandemic supercharging demand, and lockdowns disrupting production lines, it was perhaps inevitable that chip availability would be squeezed. It hardly helped that accidents hampered production even further, notably via a fire at one of
4/5
The proportion of the current chip production that sits across the Pacifi c.
Deloitte 107
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