Electronics

From the outbreak of the new crown epidemic to the present, the shortage of chips has always plagued the electronic product supply chain.

u3000u3000The reason why the shortage of chips continues is mainly because the supply exceeds demand.

u3000u3000Key points:

u3000u3000 1. The epidemic has promoted the development of home office, home entertainment, and e-commerce, leading to a surge in demand for technology products, but the new chip factory takes a long time and cannot keep up with the growth rate of demand;

2. A Cornell University professor said: “If everyone wants to produce chips, they will snap up the same equipment”; because to deal with toxic chemicals, only trained professionals can “make cores”, which leads to labor Shortage status

u3000u30003. When all aspects are in short supply, the existing resources are tilted towards the more demanding cutting-edge chips, while the old chips are placed in a relatively secondary position.

u3000u3000 From the outbreak of the new crown epidemic to the present, the shortage of chips has always plagued the electronic product supply chain. The epidemic has caused industry turmoil for nearly two years. As the heart of a variety of technological products, there is still a serious shortage of chips; manufacturers in the industries of game consoles, network equipment, medical equipment, and automobiles are still suffering from the lack of cores.

u3000u3000 People initially thought that this problem would be resolved on its own-either manufacturers stepped up efforts to meet demand, or demand naturally cooled down, but now the "core shortage" problem is still very serious.

u3000u3000The chip problem has not been alleviated, but it has become more difficult to control. While the lockdown of the city and the isolation of all people’s homes have become a thing of the past, the shortage of chips is still a big problem at hand.

u3000u3000 Due to the inability to build enough cars, some automakers' sales plummeted and forced to suspend production. On November 17, Volkswagen suspended the production of electric vehicles in Germany due to supply chain issues. The Associated Press reported in September that due to the lack of cores, GM and Ford's many North American assembly plants once suspended production; Tesla CEO Elon Musk once reminded in employees’ internal emails that Tesla’s delivery volume depends on global chip shortages Status, and the shortage is still serious.

u3000u3000 In October of this year, Apple attributed its poor financial performance to chip shortages. There were also reports that iPhone 13 would cut production by 10 million due to chip shortages. Intel also warned that the shortage of supply may continue until 2023.

u3000u3000 The gaming hardware industry is also not doing well. Nintendo also announced this month that it had to lower its sales expectations due to factors such as chip shortages. Nintendo expects total sales for the current fiscal year to be 24 million units, which is about 6% lower than the previously set sales target of 25.5 million units.

u3000u3000 In short, the semiconductor supply chain has been extended in new ways that are deeply rooted and difficult to solve. The growth rate of demand exceeds the capabilities of chip companies, especially the use of a wide range of basic components, which will bring several major investment risks due to huge demand fluctuations.

u3000u3000 Brian Matas, vice president of market research at IC Insights, a semiconductor industry analysis company, said: “The global economy has been stagnated for so long because of the epidemic, and the supply chain has not yet recovered.”

u3000u3000 The chip industry is clearly at the forefront of technological advancement, but why is there always a shortage, even if you buy a PS5, it will not be a second?

u3000u3000The reason why the shortage of chips continues is mainly because the demand for chips is in short supply. The demand for chips is still surging, but building new factories is not always a matter of overnight. In addition, the cyclical changes in history have also discouraged some investors.

u3000u3000 The demand is rising fast and building a new factory is not so fast

u3000u3000 In 2020, when the economic impact of the new crown epidemic gradually becomes apparent, the chip industry has begun to anticipate demand growth. According to data from the Semiconductor Industry Association, global chip sales fell 12% in 2019. But in December 2019, the organization predicted that the global chip industry will grow by 5.9% and 6.3% in 2020 and 2021, respectively.

u3000u3000 The latest data shows that global chip sales between August 2020 and August 2021 have increased by 29.7%. Demand benefits from the promotion of cloud computing and 5G technologies, and various products such as automobiles and home appliances are also increasing the use of chips.

u3000u3000 Harvard Business School professor and former Intel director David Yoffie (David Yoffie) said that home office, home entertainment and e-commerce have caused the demand for many high-tech products to skyrocket, which is beyond many people's expectations.

u3000u3000 Chip makers didn’t realize the continued strength of this demand until about a year ago, but the turnaround did not happen overnight. It will cost billions of dollars to build a new chip factory, and it will take several years. Joffe pointed out: "It will take about two years to build a new factory. And the factory is getting bigger and bigger, the cost is getting higher and higher, and it's getting more and more complicated."

u3000u3000 Sony and TSMC recently announced that they will invest 7 billion U.S. dollars to build a chip factory in Japan that can produce old components, but it will not start production until the end of 2024. Intel is also investing in the construction of several new technologically advanced factories, but they will not go online until 2024

u3000u3000Yofi pointed out that only the Dutch company ASML (one of the world's largest semiconductor equipment manufacturers) can supply the extreme ultraviolet lithography machine required to produce cutting-edge chips, and the price is as high as 120 million US dollars. But ASML cannot speed up the supply and meet the surge in demand.

u3000u3000Insufficient equipment and materials

u3000u3000 Many items needed to produce semiconductors are also in short supply. The substrate for making printed circuit boards, that is, the surface on which the chip is fixed, has always been difficult to purchase.

u3000u3000 These current plates are the key to communication between chips. Ron Olson, director of operations at the Center for Nanoscience and Technology Research at Cornell University, also pointed out that some complex items related to the manufacturing process, such as personal protective equipment and natural gas pipes, are now also experiencing delays in delivery.

u3000u3000 The construction of new factories and the expansion of the capacity of existing factories also put pressure on the semiconductor production equipment supply chain. "We tend to pay attention to chip factories, but chip factories need a whole set of things to become chip factories, and these things are now having problems." Cornell University materials engineering professor Chris Ober said, "If everyone If you want to produce chips, you will snap up the same equipment."

u3000u3000 The number of highly specialized semiconductor equipment manufacturers is limited and the delivery cycle is very long. In addition, it also takes a lot of time to install and test the reliability of these devices in the factory.

u3000u3000 "It takes half a year to a year to buy equipment, and then various process development and equipment appraisal are required." Olsen said, "It takes time."

u3000u3000 labor shortage

u3000u3000 In order to meet the increasing demand for chips, in addition to building more chip factories, more people have to be recruited. The semiconductor trade organization IPC issued a report at the end of September that nearly four-fifths of manufacturers have difficulty recruiting suitable workers, and the problems in Europe and North America are particularly severe.

u3000u3000 To deal with the toxic chemicals used in the chip production process, employees have to receive special training, which brings another bottleneck to the increase in labor. Companies are now relying on higher salaries, more flexible working hours, and training and education opportunities to attract new employees.

u3000u3000 The Oregonian newspaper reported that Intel even placed "help wanted" advertisements on TV and radio, specifically recruiting work-study college students.

u3000u3000Resources are tilted towards cutting-edge chips, and old-fashioned chips are "difficult to produce"

u3000u3000 The further impact of insufficient resources is reflected at this time-not all chips are "born equal."

u3000u3000 Simple semiconductor components such as power control chips, micro-control chips and sensors have become the main source of shortage. The complexity of these devices is far less than the CPU and GPU used in smartphones and game consoles, and the manufacturing processes used are not too complicated. But their application range is extremely wide, from microwave ovens to medical equipment to toys, almost all products will use this kind of electronic components.

u3000u3000 Electronic component platform Sourceability vice president Josh Pucci (Josh Pucci) said that the power control chip used in many products once only cost $1, but now it has skyrocketed to $150. IC Insights said the lead time for such components has been extended from 4-8 weeks to 24-52 weeks. Old-fashioned chip production equipment is now hard to find, and the shortage of these products pushes up the demand for such equipment.

u3000u3000 Market research company Gartner predicts that the global chip factory capacity utilization rate will reach 95.6% in the second quarter of 2021, compared to only 76.5% in the second quarter of 2019. Gartner analyst Gaurav Gupta (Gaurav Gupta) said that this shows that the factory is already running at full capacity because some production lines need to be shut down for maintenance.

u3000u3000Chip foundry company GlobalFoundries CEO Tom Caulfield (Tom Caulfield) said in October this year that his company's production capacity has been booked until 2023. Some products of Analog Devices are facing extremely high demand. The CFO of this company told investors in August this year that orders have been scheduled for the next fiscal year beginning this month.

u3000u3000Part of the challenge facing chip manufacturers is that some customers may have "double booking" situations, that is, deliberately over-purchasing in order to prevent insufficient supply, which makes future demand trends unpredictable. "The shortage of stock caused by double bookings made the situation worse," said Willy Shih, a professor at Harvard Business School.

u3000u3000 In June of this year, Musk also jokingly said on Twitter that “because of fear of not enough, every company over-ordered. This situation is like a shortage of toilet paper, but on a huge scale.”

u3000u3000Analysts believe that companies that can produce these chips may be reluctant to invest in new plants because of the meager profits of such chips and the strong cyclical nature of the semiconductor industry. Demands often skyrocket and plummet. They worry that the oversupply of chips in the future will drive down product prices.

u3000u3000 "Looking back at the history of the semiconductor industry, you will find that after profits and prices have skyrocketed, there will be a serious downturn cycle." Harvard Business School's Jofi said, "We don't know whether the current demand growth can continue."

u3000u3000Although there are many new chip production capacity, most of them will be used to satisfy cutting-edge products. A report released by Gartner in January this year predicts that chip manufacturers will invest 146 billion new capacity this year, an increase of 50% over 2019, but only a small part of it will be used for more common old chips.

u3000u3000 In theory, increasing the production capacity of cutting-edge chips can free more factories to produce old-fashioned chips, but this will not happen when the supply is in short supply. Sourceability's Pushi said that although companies have recently begun to invest in building capacity for old-fashioned chips, they must make customers commit to two-year orders before considering starting construction.

u3000u3000 Judging from the impact of water shortages in Taiwan, China and extreme weather in Texas, the United States, the pressure on these components and their supply chains is obvious. "A few weeks of inventory, it can be said that there is no room to digest these effects." Pushi said.

u3000u3000 "The epidemic seems to have passed its'raging' stage," said Gad Allon, a professor at the Wharton School of the University of Pennsylvania. "But the chip industry affected by the epidemic is still in dire straits."

u3000u3000 When will the chip be missing?

ASML CEO Peter Wennink recently explained: “Last year because of the epidemic, customers were very cautious. But looking back, they seem to be overly cautious and suppress demand too small. Now demand is soaring. It will definitely take a while for us to achieve capacity ramping." In his view, we need to wait until 2022 to meet today's output demand.

u3000u3000 Intel CEO Pat Gelsinger (Pat Gelsinger) stated that the surge in online activities during the COVID-19 pandemic has triggered a "semiconductor explosive growth cycle." He added: "Although the industry has taken some measures to resolve the recent tensions, it will take two years for the entire ecosystem to resolve the shortage of chips, substrates and components."

u3000u3000 TSMC Chairman Liu Deyin is optimistic about his ability to meet demand. He said last year: "We currently think... we can meet the minimum requirements of our customers by the end of June (2020)."

u3000u3000 But as he said, this does not mean that the shortage will disappear soon. "There will be delays. Especially for automotive chips, the supply chain in this industry is long and complicated. The supply time will take seven or eight months." He added.

u3000u3000 Semiconductor demand will obviously continue to grow, Winnick said: “We firmly believe that the current production capacity cannot support growth. Therefore, we need to speed up production by shortening the production cycle, increasing manpower, machinery and building area to increase production capacity.”

u3000u3000 "The fundamental trend lies in digital transformation," Winnick concluded. "It will take many years to achieve."