Why the Chip Shortage Continues and Continues … and Continues
The growing demand for high-tech products triggered by working from home, locking in anger, and shifting ecommerce is only continuing, much to the surprise of many, as it were. David Yoffie, a Harvard Business School professor who previously served on Intel’s board.
Chipmakers didn’t appreciate the size of the ongoing demand until about a year ago, Yoffie said, but they couldn’t make a penny. New chip-making factories cost billions of dollars and take years to build and wear. “It took about two years to build a new factory,” Yoffie said. “And factories are becoming bigger, more expensive, and more complex as well.”
This week, Sony and Taiwan Semiconductor Manufacturing Company, the largest contract maker of chips, SAYS they will invest $ 7 billion to build a fab that can make old ingredients, but it won’t start making chips until the end of 2024. Intel has also invested in a lot of new carpenters, but it won’t come online until 2024.
Yoffie says only one company, ASML in the Netherlands, makes extreme ultraviolet lithography machines required for cutting-edge chip-making, and ASML cannot produce machines fast enough to satisfy demand.
Another issue is that not all chips are made equal.
Simple components — integrated circuits that control power, microcontrollers, and sensors — have become an important pinch point. These devices are much simpler than the CPUs and GPUs used in smartphones and gaming machines and are made using old manufacturing methods that require less complexity. But they are present in almost every electronic product, from microwave ovens to medical devices and toys.
A power-controlling integrated circuit used in many products that once cost $ 1 can now be sold for $ 150, said Josh Pucci, vice president of Sourceability, which compares electronic component buyers to sellers. IC Insights says lead times for such components range from 4-8 weeks to 24-52 weeks. The shortcomings of these devices increase the demand for the elderly who are hard to find chip -making equipment.
Gartner estimates that semiconductor foundries will operate at 95.6 percent of their capacity in the second quarter of 2021 compared to 76.5 percent in the second quarter of 2019. Gaurav Gupta, an analyst at Gartner, says this effectively means the plants were maxed out because some downtime was required. for maintenance.
Tom Caulfield, CEO of chipmaker GlobalFoundries, said in October that his company was sold until 2023. The CFO of Analog Devices, which makes some of the most sought -after components, told investors in August that his company’s order book at the time came in the next financial year, starting this month.
Part of the challenge for chipmakers is that some customers may “double order,” or buy more components than they need when supply runs out, distorting the picture of future demand. “It’s the shortcomings in the area due to double ordering that make things worse,” he said Willy Shih, a Harvard professor studying manufacturing and global supply chains.
Analysts say companies that make these chips may be reluctant to invest in new factories because the chips carry thin profit margins and the industry is notoriously cyclical, with spikes. in demand followed by sharp declines. They fear a future surge in chips that will lower the price.