Economics - Case study of a supply and/or demand

SUPPLY SHOCK AND ITS IMPACT ON SEMICONDUCTOR PRODUCTION AT INTEL CORPORATION Student Instructor Institution Course and Code Date Table of Contents TOC \o "1-3" \h \z \u 1.0 Introduction PAGEREF _Toc177519616 \h 32.0 Supply Shock in the Semiconductor Industry PAGEREF _Toc177519617 \h 42.1 Causes of the Semiconductor Supply Shock PAGEREF _Toc177519618 \h 42.2.1 COVID-19 Pandemic PAGEREF _Toc177519619 \h 42.2.2 Increased Demand for Consumer Electronics PAGEREF _Toc177519620 \h 42.2.3 Geopolitical Tensions PAGEREF _Toc177519621 \h 52.2.4 Natural Disasters PAGEREF _Toc177519622 \h 53.0 Impact on Intel Corporation PAGEREF _Toc177519623 \h 63.1 Increased Production Costs PAGEREF _Toc177519624 \h 63.2 Delays in Fulfilling Orders PAGEREF _Toc177519625 \h 63.3 Loss of Market Share PAGEREF _Toc177519626 \h 63.4 Strategic Adjustments PAGEREF _Toc177519627 \h 74.0 Identified Challenges or Gaps Faced by Intel Corporation PAGEREF _Toc177519628 \h 74.1 Supply Constraints PAGEREF _Toc177519629 \h 74.2 Increased Competition PAGEREF _Toc177519630 \h 85.0 Economic Analysis PAGEREF _Toc177519631 \h 85.1 Supply and Demand Imbalances PAGEREF _Toc177519632 \h 85.2 Production Possibilities Frontier (P.P.F.) Model PAGEREF _Toc177519633 \h 95.3 Market Structure and Competition PAGEREF _Toc177519634 \h 105.4 Elasticity of Supply and Demand PAGEREF _Toc177519635 \h 116.0 Intel's Strategic Response to the Supply Shock PAGEREF _Toc177519636 \h 116.1 Capacity Expansion and Investment in Innovation PAGEREF _Toc177519637 \h 116.2 Diversification of Supply Chains PAGEREF _Toc177519638 \h 126.3 Collaboration with Governments and Industry Partners PAGEREF _Toc177519639 \h 126.4 Price Adjustment and Revenue Management PAGEREF _Toc177519640 \h 126.5 Long-term Planning for Market Shifts PAGEREF _Toc177519641 \h 127.0 Conclusion PAGEREF _Toc177519642 \h 13References PAGEREF _Toc177519643 \h 13Appendix PAGEREF _Toc177519644 \h 15 Supply Shock and its Impact on Semiconductor Production at Intel Corporation 1.0 Introduction Over the last few years, the global economy experienced several shocks, one of which is the shortage of semiconductors. Several factors made semiconductors, essential in applications ranging from automobiles to consumer electronics and telecommunications, suffer a severe supply shock. The shortage of chips has had a direct impact on Intel Corporation, which is one of the largest producers of semiconductors. This paper aims to analyze the case study on supply shock on Intel's production capabilities, consider the pertinent economic issues of supply and demand disequilibrium, and give suggestions on how the company should respond to the shock. The evaluation of Intel's situation and the strategy for recovery and adaptation will also employ economic models like the P.P.F. model, elasticity concepts, and relevant market structures such as monopolistic competition and oligopoly. 2.0 Supply Shock in the Semiconductor Industry 2.1 Causes of the Semiconductor Supply Shock The semiconductor shortage that began in 2020 and extended into 2022 was triggered by a combination of factors, including the COVID-19 pandemic disrupting supply chains, a surge in demand for electronics due to remote work, and production halts at key manufacturing plants. 2.2.1 COVID-19 Pandemic The COVID-19 crisis disrupted global supply chains significantly through factory closures, labor constraints, and logistic challenges. Some semiconductor producers, including Asian ones, lost their ability to produce at the previous pace due to health issues and the corresponding lockdown measures (Niu et al., 2023). Measures taken to curb social interaction and limit the movement of people only ensured the supply of raw materials where they were needed most but impacted manufacturing significantly. Logistical bottlenecks that arose due to the congestion in ports and the downturn in air freight also contributed to the slowing transportation of semiconductors (Niu et al., 2023). This disruption was prolonged, resulting in a massive reduction in supply and, more so, affecting industries that required a steady and constant supply of these chips. 2.2.2 Increased Demand for Consumer Electronics Due to the pandemic, there was an enormous increase in the demand for consumer electronics since the world switched to working from home, online classes, and home entertainment. With millions of people being asked to work from home, there was a substantial increase in demand for laptops, webcams, tablets, and smartphones. On the other hand, internet perusing and streaming services boosted the need for gaming consoles and smart gadgets. This forced supply chain could not meet the increasing demand for consumer electronics, thus worsening the global chip shortage (Mouré, 2022). Even the companies already in operation felt the heat as this new demand put them under immense pressure to manufacture semiconductors. 2.2.3 Geopolitical Tensions Political and regional issues, such as the tensions between the U.S.U.S. and China, played a role in the semiconductor deficit. Australia has banned major Chinese technology companies, including Huawei, and has implemented strict measures restricting access to crucial semiconductor components (Deligöz, 2024). These companies eventually resorted to hoarding chips, which added pressure on the worldwide supply. The Australian government has recently strengthened rules regarding semiconductor manufacturing equipment export controls specific to Chinese companies (Ferguson et al., 2023). These ambiguities along the supply chain and a persistent trade war forced many organizations to place their bets on inventory, adding to the disruption of the semiconductor supply in the global market. 2.2.4 Natural Disasters In 2021, natural disasters, especially those in Taiwan, were instrumental in deepening the semiconductor deficiency. A large fire at Renesas Electronics, a Japanese company that manufactures automotive chips, stopped production for several months. Tech giants in Taiwan, a global leader in chip production, especially Taiwan Semiconductor Manufacturing Company (T.S.M.C.), were hit by the worst drought in several decades that restricted the water necessary for processing chips (Poitiers and Weil, 2021). These incidents have been combined and halted production in major manufacturing centers, prolonging the shortage of chips globally. 3.0 Impact on Intel Corporation 3.1 Increased Production Costs The shortage of semiconductors on the global market impacted Intel by raising the prices of the materials needed for its production and manufacturing equipment. Disruptions within the supply chain depressed the cost of essential inputs like silicon wafers and advanced lithography equipment (Haramboure et al., 2023). The interruption of operations required Intel to spend even more on maintaining operations and their sustainability. These rising costs reduced profit and thus greatly impacted Intel’s pricing strategies, especially in consumer electronics, automotive, and data centers, because cost competitiveness determines profitability in these areas. 3.2 Delays in Fulfilling Orders The shortage affected Intel’s capacity to deliver new products to its customers as it could not meet the specialized and high-performance chips for vehicles and large data centers. The availability of components was an issue that caused a problem in the manufacturing schedule, and therefore, clients who were relying on Intel processors faced long lead times. These delays had an impact not only on client operations but also on their faith in Intel as a company that can deliver on time. For this reason, some clients began to look for other sources of supply, which was especially difficult for Intel during the semiconductor crunch. 3.3 Loss of Market Share While Intel faced difficulties in managing its supply chain during the shortage of semiconductors, competitors such as AMD and T.S.M.C. were able to capitalize on this. Both AMD and T.S.M.C. gain...