No one can really say when the chip shortage will end – here’s why

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Ever since the global chip shortage began, many industry executives and commentators have speculated as to when it might end.

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It is universally accepted that the shortage resulted from an unfortunate confluence of factors, from pandemic-related manufacturing shutdowns and rising demand for electronics, to disruptions in the freight sector and strange weather events.

But although there is agreement on causality, there is little agreement on assessing the extent of the problem and defining a timeline for recovery. Some say the shortfall will ease next year, others say the problems will persist into 2023 and beyond.

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That’s because asking when the global chip shortage will end is like asking: “How long is a piece of string?”

a language problem

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The first part of the problem deals with the language used to describe the situation; The “global chip shortage” is an oversimplification, with no room to describe the complexity of the semiconductor supply chain, nor the variation in chip type.

As a result, different people mean different things when they refer to the lack of a chip. For example, the reduction experienced in the automotive industry differs from the impact on the consumer electronics sector, despite the reasons shared. And while some types of chip are in short supply, others are more readily available.

“[The term] The ‘chips’ cover a wide range of different chip types,” Alan Priestley, VP analyst at Gartner, told Nerdshala Pro. “While some chips may be available, they often require other chips to be usable.”

“For example, CPUs need power management chips, and when CPUs are not in short supply, so do power management chips.”

According to Priestley, one of the most significant constraints is the lack of production capacity on 200mm fabs (the number corresponds to the diameter of the silicon wafers used in production). Unlike 300mm plants built to produce bleeding edge chips, 200mm facilities churn out chips based on older process technologies, typically from 350nm to 65nm.

TSMC’s Fab 6, a 200 mm (8-inch) manufacturing plant

Although much less advanced than semiconductors produced on 7nm, 5nm and soon 3nm nodes on 3nm fabs, these commodity chips play an essential role in millions of products.

“Before the pandemic, 200mm production was already at maximum capacity,” Priestley said. “The growing demand for PC and consumer products has increased the demand for chips built on 200mm: power management, voltage regulators, display drivers, etc.”

All of this is to say that the duration and severity of shortages will depend, in large part, on each industry’s reliance on different types of chip made in different manufacturing plants.

point of view

Another explanation for the discrepancy in estimates is that chip shortages, analyzed broadly through the lens of the automotive industry, have been particularly badly hit.

The sharp drop in business at the start of the pandemic saw automotive companies cut production and withdraw orders placed with foundries. But by the time the market started to boom again, the chip production capacity accepted by car makers had been taken away by other players.

To avoid the huge losses associated with closing factories, major manufacturers such as Ford and General Motors are filling their lots with half-baked vehicles with the intention of adding the all-important chips when they become available later.

Other players have worked around the problem by dropping features that require chips to work. For example, Tesla has removed passenger seat lumbar support from some of its categories to cut down on its chip consumption.

Glen O’Donnell, director of research at Forrester, says the devastating impact of the pandemic and chip shortages on the automotive sector has also exposed the underlying politics in the semiconductor industry.

Intel plans production and cleanroom facilities in Hillsboro, Oregon

When asked which sectors are likely to recover from the shortfall soon, O’Donnell told us that the speed at which industries are recovering will likely depend on their perceived importance and the clout of their constituent companies. He says the auto industry is the first in line for relief.

“[The automotive] The industry has been the squeak wheel, but others will suffer. The general public doesn’t care that Cisco can’t get the chips, but when you can’t get your Ford F-150, He There’s a problem!” O’Donnell quipped.

“And the big buyers (like AWS, Microsoft and Apple) get priority over the smaller manufacturers. If Apple wants 100 million chips and the little guy only wants 5,000, then Apple gets priority and the little guy struggles. Everyone is now feeling the sting of a market that is enigmatic and (until now) largely hidden from view. “

increase capacity

To meet the surge in demand, TSMC, Intel and Samsung, the world’s largest foundries, are building all-new fabs and pulling every lever and dial to optimize the potential of their existing facilities.

Meanwhile, uneasy with the dominance of Asian foundries – especially in light of China’s aggressive stance on Taiwan (home of the world’s leading chip maker TSMC) – both the US and the European Union have launched multi-engine units designed to localize the semiconductor. Billion dollar stimulus package announced. the supply chain.

However, there is only so much customization that can happen, and it takes years and billions of dollars to build a fab from scratch. No matter how much money is invested in rectifying the shortfall, there is no way to speed up that time.

Given these limiting factors, O’Donnell says, it should be possible to make a sensible projection; Not to specify a date for the end of the shortage (which is subjective), but to predict when the aggregate supply will start to rise.

“Different people look at this problem from different angles, but the time frame is actually pretty easy to determine when you have all the facts,” he explained before showing us his methodology.

Simply put, given production capacity has been maxed out and there is no indication that demand for semiconductors will decrease, the situation will remain unresolved until new fabs are built. And because it takes at least two years for a plant to spin up, O’Donnell says it will be 2023 before supplies increase. Until then, any supply directed towards the recovery of one industry (or company) will come at the expense of another.

when will there be a shortage of chips End It’s a matter of perspective, but when will supplies begin – it’s not – and we have years to wait.

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