Chips are in hot demand—and that’s a problem
5 min read . Updated: 16 Jan 2021, 09:41 AM ISTSurging appetite for 5G smartphones, rebounding car sales squeeze semiconductor makers
Semiconductor companies are asking their customers for patience as the industry works through a sharp increase in demand from makers of everything from cars to consumer electronics.
The chip shortage has caused prices to rise for certain semiconductors, delays in filling orders and auto makers to idle factories. If the problems persist, consumers may see delays in getting new cars and some electronic devices, and possibly higher prices.
MORE FROM THIS SECTIONSee All
Bluetooth noise-canceling headphones and earbuds from $50 to $130: Good sound with a trade-off
5 min read . 02:09 PM IST
Croma offering discounts on Apple products under new programme: Details here
1 min read . 28 Feb 2021
There is no quick fix to the situation, either. Adding new chip-making machinery can be expensive and slow, and some of the deepest supply problems are taking place with older production lines that are less lucrative for manufacturers.
“In the whole semiconductor industry there is very little [spare] capacity right now—everything is doing well," said Risto Puhakka, president of VLSIresearch, an industry-analysis firm. “We’re coming off a record investment year, and the demand continues to grow."
The shortages add to the upheaval currently affecting the semiconductor industry. Intel Corp. this week ousted its chief executive, Bob Swan, after product delays, and mobile-phone chip giant Qualcomm Inc. added to a deal-making frenzy.
Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker, said Thursday it was working with the car industry to address critical shortages. Chief Executive C.C. Wei also said TSMC’s customers are likely to boost chip inventory to protect against future bottlenecks. The manufacturer said it was boosting capital investments by at least 47% this year from 2020 amid surging demand.
Suppliers as diverse as graphics chip maker Nvidia Corp., America’s largest semiconductor company by value, and NXP Semiconductors NV, a Dutch supplier of automotive, industrial and communications chips, are being affected by supply crunches.
Demand for laptops has skyrocketed, and remote work during the Covid-19 era has increased appetite for cloud-computing services and the data centers behind them. On top of that, a surge in demand for chips that go into new 5G phones has put a squeeze on manufacturing capacity, chip companies say. And U.S. restrictions on Chinese telecom giant Huawei Technologies Co. led competitors to try to steal market share.
TRENDING STORIESSee All
_1614586556676_1614586583621.jpg "Sumit Gupta, founder, CoinDCX")
Mass exit can erode Indian cryptocurrency investors' wealth: Sumit Gupta, CoinDCX
4 min read . 02:07 PM IST
Nvidia is facing a different kind of challenge: Demand for its newest chips is so hot that it is outpacing its ability to increase production.
With chip plants effectively running all out already, auto makers and consumer-electronics manufacturers are competing for every bit of limited manufacturing capacity.
China, where demand recovered early, was among the first markets to feel the pressure. And the car industry was among the first to get hit.
Ford Motor Co. said it was going to idle a factory in Kentucky this week because of chip shortages that has also led some competitors to change production plans. In the face of the shortages, General Motors Co. last month asked suppliers to stockpile a year’s worth of chips.
Chip customers usually place bulk orders well ahead of time, but fulfillment has been taking much longer than usual. Lead times across the industry have risen to six months, from eight to 10 weeks before the pandemic, said Elsie Neoh, a commodity manager at electronic-components distributor Fusion Worldwide. Stephen Oliver, an executive at Navitas Semiconductor Ltd., which supplies chips that go into phone chargers, said that while his company wasn’t experiencing major disruptions, some customers were wrestling with silicon lead times of 26 weeks or more.
The surge in demand is expected to boost sales for contract chip makers that account for a major share of the world’s semiconductors. Sales are expected to grow 6% this year, reaching a record high, according to Taipei-based analysis firm TrendForce. TSMC is running at about 90% of capacity for its most advanced chips, TrendForce said last month.
Globalfoundries Inc., a major U.S.-based contract chip maker, is doubling its capital investment this year compared with 2020 to boost capacity, said Mike Hogan, the company’s senior vice president overseeing automotive and industrial chip making.
The shortages are having a knock-on impact on chip makers that have avoided supply problems either because they own their own factories or sell chips where manufacturing capacity shortages are less acute. Micron Technology Inc. Chief Executive Sanjay Mehrotra last week said demand recovery for the company’s memory chips would be stronger if customers weren’t hobbled by shortages in other components.
Although the chip shortages are broad based, the impact on the car industry, which was hit by a supply slump and plants idled by Covid-19 early in the pandemic, has been particularly pronounced.
NXP, a major chip supplier to the automotive industry, told customers in November it saw a “severe shortage" of chips and said it would raise prices on all its products. Microchip Technology Inc. Chief Executive Steve Sanghi said Tuesday at an auto forum that the company’s bookings and backlog were at all-time highs, but that it was facing capacity constraints that would continue well into this year. Lead times on some products were 40 weeks or more, he said, adding that Microchip had been driven to raise prices.
The automotive industry bears responsibility for failing to place orders early enough in anticipation of the demand recovery, VLSIresearch’s Mr. Puhakka said. As use of chips in cars has increased to meet appetite for more-powerful entertainment systems and driver-assistance functions, he said companies needed to better manage their supply chains.
“They don’t understand that the production cycles are long, the development cycles are even longer and there are reliability requirements that increase the cycle times," he said.
Auto makers didn’t directly address what role they played in creating the supply problem, but said it would take time to resolve. Many auto makers have changed production plans through the end of January, and a Toyota spokesman said recently the company expects shortages could continue through the spring.
Where the broader chip-industry shortages are being felt most acutely, in many cases, isn’t at the cutting edge of technology, but rather those products using older and cheaper processes that aren’t as lucrative for manufacturers, analysts and industry executives say.
Chip makers have invested in production lines that churn out more-modern, higher-margin chips, but they haven’t kept pace with capacity increases to satisfy still-growing demand for products built on an older standard of silicon wafers, they said.
The chip industry is warning that the situation won’t be resolved for some time. Bruce Kim, chief executive of SurplusGlobal, a South Korean broker of used semiconductor-manufacturing equipment, said most contract chip makers using older-generation silicon wafers were fully booked until the end of this year. The chip shortage, he said, would likely last through the end of 2022.
Nvidia, too, expects its issues will take time to fix. “Our overall supply continues to be worked each and every day throughout this quarter and we hope to see improvements as we move forward, but we do expect it to take a couple of months for us to stabilize the overall supply versus the demand," the chip company’s chief financial officer, Colette Kress, said at a UBS event last month.
This story has been published from a wire agency feed without modifications to the text.
Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.
×![]()