If you subscribe to the view that Artificial Intelligence (AI) is going to change life as we know it, then you will have a vested interest in the semiconductor industry. Semiconductors, or chips, are the workhorses behind AI and nearly every modern digital technology. Chips are so vital that they have been described as the “oil of the 21st century”, turning companies like Nvidia and TSMC (leaders in advanced chip design and manufacturing respectively) into household names.
It is therefore surprising that the supply chains underpinning this crucial component remain some of the most precarious.
Key risks include:
Chip manufacturing remains a highly globalised activity, despite recent initiatives by governments to “onshore” more of the supply chain.
Key stages of the production process are geographically concentrated. Localised disruption can therefore have global ramifications for supply, demand and pricing dynamics.
Global supply and demand can be volatile. While some companies, like Nvidia, have benefited from strong demand, other parts of the industry have seen oversupply. The long-term growth potential of key demand drivers, such as AI, is still uncertain.
Governments employing more muscular trade policies, for example through export controls and sanctions.
It is fair to say that chips increasingly resemble a commodity. As disputes lawyers, we deal in the legal mechanisms and frameworks which have developed to respond to disruptions in similar markets. The purpose of this article is to consider how, from an English law perspective, some of these concepts may apply to contractual arrangements in the chip sector. In so doing, we hope to show the practical value that advanced thinking about potential disruption can bring.
Most people will be familiar with the concept of force majeure. We have written about its potential applicability to chip contracts in the past. Force majeure clauses generally operate to release contractual parties from their obligations upon the occurrence of certain disruptive events, for example extreme weather or war.
