interesting explanation of the integrated circuit shortage:
While the supply squeeze has been felt across the semiconductor industry, those display-bound integrated circuits pose specific challenges. Since they are not especially advanced, the circuits are typically made at chip factories that are several generations behind the cutting edge. With chipmakers focused on building more advanced fabrication plants that yield more valuable components, there has been little incentive to invest in capacity at older facilities. It’s simply not possible to churn out more of them even when demand spikes.
All manner of devices have already been affected by the chip shortage. … Companies that act as electronics component brokers say that certain components have seen prices jump orders of magnitude; voltage regulators used in countless products that normally cost 50 cents have been selling for as much as $70. But at the consumer level, products that require display integrated circuits are feeling the impact first, and hardest, because of those factory limitations.
Yes the chip shortage will be a problem for another 1-2 years.
The chip shortage is also then causing constraint in other industries. Auto makers can’t build all the cars they need right now due to lacking the electronics.
You can’t just increase production for chips quickly since the factories take years to build. And if production is maxed out then there are going to be shortages. Some shortages you can fix by moving around production. Contrary to what the article implies you can build simple chips at the newer factories. The advanced fabs shrink the transistor widths and allow for more complex chips. But that same equipment can quite easily make simplier chips too. But the thing is no business is going to want to make $1 chips on equipment that can make $200 chips. OTOH when that 50 cent chip is now worth $70 then you might make a few of those when you’re idle… Also I don’t think people just build fabs purpose built for simple chips. Simple chips are made at older fab facilities. So todays high end fab will likely be in use 20 years from now making simple chips. Its like waterfalling obsolete stuff to another purpose.
But eventually people shut down the old fabs since they’re not profitable.
The chip packaging might be a bigger problem. The fabs make the chip and then the chip is packaged. Packaging processes and production aren’t interchangeable. I don’t know how hard it is to ramp up or convert packaging production. I don’t know if thats part of the problem or not, media reports aren’t that technical. Maybe the packaging is what thy’re really talking about.
Could also be that making the simple chips on teh new process requires a minor design modification and this then makes it technically a ‘new’ part which people don’t consider equivalent because they haven’t techncially validated it yet. Again simple news reports don’t go to that detail so who knows.
It could just be that overall chip capacity is maxed out so everyones vying for production. If that happens then the cheapest simple stuff is going to be lower priority and can then be a bottleneck. But that comes around to bite you, even high end stuff requires the simple chips too. So your computer might have a $200 CPU in it and there won’t be constraint on those $200 chips but you can’t build the computer if you can’t get the 50 cent voltage regulators that the CPU relies on.
So, what’s the reason for the shortage? My impression is that they are just trying to catch up after shutting down everything last year. Or is it that the demand now is much higher than in previous years?
Edit. Probably both. The article mentions that working from home has greatly increased the demand for computers and tablets
There was already a shortage precovid, afaik… gonna be a couple years until new fabs are up. We got a fake foxconn deal with imaginary promised menial labor jobs instead of a start on new fabs, until this year.
The (formerly) impending chip shortage has been near the top of known national security risks for a while.
Things like auto parts suppliers not paying to reserve enough capacity last year are blamed on poor decisions made by those companies during covid, but the overall shortage is hard to blame on covid.
Bringing up new capacity in advance to prevent a supply crunch required government intervention. The fabs had no financial interest in preventing a demand/supply imbalance — more demand than supply bids up prices and makes things much more profitable, as opposed to forecasting an increase in demand and taking an economic risk to start building more capacity. It’s similar to the mess Texas had with no requirement or incentive for weatherization of electricity production – the producers received a jackpot payout for underdelivering power and killing people.
This does not make sense. If it were true, why would, for example, General Motors spend money to build a car manufacturing plant? After all a shortage of cars increases the price they can get for their cars. The reason they do it is because they have competition. If they cannot supply cars then Ford will build a plant to provide them and take away sales that otherwise might have gone to General Motors. It is only when the government interferes with the economy as they did with the Covid lockdown that we get distortions in the market as we are seeing now.
It takes multiple years to bring up a new fab, and a massive up- front investment. Cars are complicated, but not as long to shift production amounts (after last cycle).
You’re also citing an “example” where all the domestic producers failed and went bankrupt except Ford because they had too much capacity and couldn’t ramp down in their prior setup… and as you unintentionally point out there is much more competition in autos, with many more manufacturers…
I think the big reasons for the chip shortage are 1) increased demand across many sectors that use chips and 2) covid disrupting the supply/demand and supply chains with stuff being turned on / off which in turn messes up all the planning and scheduling of production.
Demand for chips is up across the board I think. Notebook computer sales was up about 22% in 2020 due primarily to covid. While stuck at home we all used the internet much more for work and streaming TV etc. streaming, google, social media all saw usage jump signficant % during covid. That caused them to require more infrastructure which increased demand for servers and the chips used to make the servers and internet. Phones undoubtedly sold more too. The list goes on.
I don’t think that chip supply was really curtailed by covid. At least not much if at all. Lots of chip making is in Asia and they didn’t shut down or get hit with covid that bad. e.g. TSMC is in Taiwan and Taiwan they never locked down. If you look at S. Korea their covid stats look better than my state of Oregon and they have over 10x the populatio of OR… And if you look at fab production its in a clean room and the techs wear full body suits. So its pretty safe work environment as far as covid.
The complexity of some of the systems makes it harder and more likely to cause shortages. A car is a good example since it has multiple chips from multiple vendors and it takes a while to build them. Car makers shut down and then orders for parts were cancelled or not made. Then they started up and had to restart the supply chain. If any link in that chain isn’t ready then they can’t make a complete car.
Chip makers are also varied. There are foundries, IDMs and fabless. Foundries are companies that just make chips on contract for other chip design companies. IDMs both design and make their own chips. Fabless are companies that have no fabrication foundry and just design the chip and then pay a foundry company to make it. So the situation varies. It depends on the chip, who makes it, where its made, etc.
I wouldn’t say it that way. In fact companies have good financial incentive to keep their own product demand and supply in balance.
Chip companies have to plan future chip production. They do that based on what they sell and expect to sell in the future. But they have to plan this years in advance since as you’ve said thats how long it takes to build a new fab.
Individual chip companies try to plan their production capacity based on their own business and future expectation. It wouldn’t make sense for them to not build enough factories to product their expected sales. Theyd just lose business and lose out to competition. They also wouldn’t want to spend an extra $10 billion to build an extra fab to have excess capacity that they don’t expect to use. That would be a waste of $10 billion with a fab sitting idle. Now you might think that if a chip maker constrains their supply this will cause scarcity and then the chip maker can raise prices. This ignores the competition or assumes collusion in the industry. Memory vendors were colluding in the past to some degree (not sure if that was proven or alleged) but otherwise theres going to be comptition in chip production so you can’t count on undersupplying your own product and having that work out. Especially not when your’e talking about planning fab production years ahead.
So if they don’t have enough supply for demand they lose money cause of course they can’t sell what their customers want to buy and they then lose out to competition.
If they have too much supply for demand then they lose money since they spent it on building idle fabs.
Either way if supply/demand is not in balance then the company loses money. They do have financial interest in keeping supply/ demand in balance.
But individual chip companies do NOT have financial incentive to create EXCESS supply capacity for emergency or contingency reasons that are not normally expected such as global pandemics. But thats really no different than any other industry. This is where the government might step in to create national reserve of important stuff. But I don’t kmnow how that works with chips unless we stock every chip or build a spare fab owned by the USA … simply pumping tax money into the semiconductor industry coffers doesn’t guarantee shortages wont’ ever happen.
Yes that was what I intended to express. National security demands there is some safety margin (along with arguably not relying on some foreign actors) of extra capacity to account for various unforeseen circumstances, along with the normal expected increase in demand. So much of the economy depends on electronics availability.
The individual chip makers don’t want to create artificial scarcity. The situation though in the fab plants is they can auction off their production capability to the highest bidders in this situation. That’s a better financial return than expending $10- $20B+ in advance of projected “likely, but not guaranteed” increases in demand and preventing themselves from benefiting in a bidding war and subsidy round. They can just wait for an inevitable shortage “crisis” to occur and all governments will throw money at them to build new plants. Plus they can also reap increased profits until the new facilities come online.
Mattress producers to car manufacturers to aluminum foil makers are buying more material than they need to survive the breakneck speed at which demand for goods is recovering and assuage that primal fear of running out. The frenzy is pushing supply chains to the brink of seizing up. Shortages, transportation bottlenecks and price spikes are nearing the highest levels in recent memory, raising concern that a supercharged global economy will stoke inflation.
Copper, iron ore and steel. Corn, coffee, wheat and soybeans. Lumber, semiconductors, plastic and cardboard for packaging. The world is seemingly low on all of it. “You name it, and we have a shortage on it,” Tom Linebarger, chairman and chief executive of engine and generator manufacturer Cummins Inc., said on a call this month.
I have to say I have not experienced substantial inflation in my every day purchases. Of course I’m not trying to buy a house, or a car. I did price a Bmax mini PC on Amazon and it looks to me like the price is coming down a little bit!
The investment markets are tanking supposedly due to inflation expectation and that might affect me but who knows?
that being said, I think the Fed and any government agency are taking a Sergeant Schultz from Hogans Heroes attitude on inflation.
this is part of the free enterprise system. There’s no guarantee the decisions by a business will pay off. but those who are willing to take the risk and are able to pull it off profit from it. And those that do not or pull it off poorly go out of business and are replaced by the successful companies.
an alternative system such as socialism inevitably leads to stagnation and poor results for the consumer. We will see that in the green energy business where the government subsidizes technologies such as solar and wind that have fundamental problems. The result will be expenditure of trillions of dollars of taxpayer money without any benefit for consumers. The money spent is either actual money from taxes or the loss due to inflation from creating fiat money.
and alternative feasible technologies such as third-generation nuclear will be left to other countries such as China to develop and eventually be sold to us when the green energy disaster craters.
You think facilitating a “too big to fail” condition, followed by a massive government bailout (along with a large disruption to citizens’ availability of transportation, and large government expenditures to dig out of the hole) is “part of the free enterprise system”?
Semiconductors are critical to almost all other manufactured products. A failure in ensuring semiconductor supply is not helpful for facilitating GDP growth. It’s much cheaper (bordering on negligible) to address the systemic risk ahead of time rather than deal with the eventual fallout. Sure, one could argue that who cares? People don’t need jobs, and the bulk of our economy should also be reliant on plants under the jurisdiction of foreign adversaries – free enterprise!.
where did I write that? I wrote the exact opposite. It is you who wants to have the government institute a too big to fail system.
should the government take over other industries that are critical to our survival? What about food or housing? Surely they are necessary for our country to survive. Reading between the lines you think that the government should take over all these industries. Name a country where Socialism works?
Regulation and use of incentives for critical national security interests is not “Socialism”
It’s hilarious how your green energy rant is 180 degrees out of phase with reality. We massively subsidize coal and coal and fossil fuel, and have for a very long time. Solar is already the cheapest energy in history (not even just the cheapest energy currently) and only getting cheaper every year.
that is to put it politely bullshit. If solar and wind are so cheap why are there only a few percent of the energy produced? What are the subsidies you write about? does the government pay you to hook up your system to the fossil fuel powered electric grid or the natural gas provided by your utility? Or does the government pay you $5000 to Install solar panels on your roof
The share is rapidly increasing as free market dictates, but existing plants have large sunk costs, are heavily subsidized, and there are supply constraints (both batteries and other storage and the panels themselves) for how rapidly solar could be added even if we ignore the large sunk costs on existing power plants.
