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| DATE | 2021-02-21 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [Hangout - NYLXS] Pandemic Economy
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https://www.bloomberg.com/news/articles/2021-02-17/the-world-is-short-of-computer-chips-here-s-why-quicktake
The World Is Short of Computer Chips. Here’s Why
Debby Wu, Sohee Kim, Ian King
11-14 minutes
Semiconductor Production at Globalfoundries Europe Plant
Photographer: Liesa Johannssen-Koppitz/Bloomberg
Photographer: Liesa Johannssen-Koppitz/Bloomberg
Carmakers from Tokyo to Detroit are slashing production. PlayStations
are getting harder to find in stores. Even aluminum producers warn of a
potential downturn ahead. All have one thing in common: an abrupt and
cascading global shortage of semiconductors. Semiconductors, also known
as integrated circuits or more commonly just chips, may be the tiniest
yet most exacting product ever manufactured on a global scale. That
level of cost and difficulty has fostered a growing worldwide dependence
on two Asian powerhouses -- Taiwan Semiconductor Manufacturing Co. and
Samsung Electronics Co. -- a reliance exacerbated by the pandemic and
rising U.S.-China tensions even before the current deficit. Hundreds of
billions will be spent by governments and corporations in a plethora of
sectors in coming years on a “chip race” with geopolitical as well as
economic implications.
1. Why are there shortages of chips?
A lot, but not all, of the disruption can be tied to the pandemic. Here
are some factors:
* The stay-at-home era caused by the coronavirus pushed demand beyond
levels projected by chipmakers. Lockdowns spurred growth in sales of
laptops to their highest in a decade, along with home networking gear
and monitors, as office work moved out of the office, and of Chromebooks
as school left school. Sales also jumped for home appliances from TVs to
air purifiers, all of which now come with customized chips. Even webcams
like the Razer Kiyo grew hard to find after video services boomed for
work and entertainment.
* Uncertainties caused by the pandemic led to sharp swings in orders.
TSMC executives said on its two most recent earnings calls that
customers have been accumulating more inventory than normal to hedge
against uncertainties. Automakers that cut back drastically in the early
days of the outbreak underestimated how quickly sales would rebound.
They rushed late last year to re-up orders, only to get turned away
because chipmakers are stretched to the max supplying smartphone giants
like Apple Inc.
* Stockpiling: PC makers began warning about tight supply of
semiconductors early in 2020. Then by mid-year, Huawei Technologies Co.
-- a major smartphone and networking gear maker -- began hoarding
components to ensure its survival from U.S. sanctions that threatened to
cut it off from its primary suppliers of chips. Other Chinese companies
followed suit, and the country’s imports of chips climbed to almost $380
billion in 2020 -- making up almost a fifth of the country’s overall
imports for the year.
2. What’s the upshot?
Some businesses are getting whacked. Chip shortages are expected to wipe
out $61 billion of sales for automakers alone and delay the production
of a million vehicles in the March quarter, but the fallout now
threatens to hit the much larger electronics industry. Not only cars but
possibly a broad spectrum of chip-heavy products from phones to gaming
consoles could see shortages or price hikes. NXP Semiconductors NV and
Infineon Technologies AG both indicated that supply constraints have
spilled beyond automotives.
Semiconductor Risk
Weight of car manufacturing as a proportion of GDP
Source: OECD TiVA (2015)
3. Who are the big players?
Advanced logic chips grab the headlines as the most expensive and
complex pieces of silicon that give computers and smartphones their
intelligence. When you hear about Apple or Qualcomm or Nvidia chips,
those companies are actually just the designers of the semiconductors,
which are made in factories called foundries.
* TSMC leads the industry in production capabilities and everyone now
beats a path to its doorstep to get the best chips made in its Taiwan
facilities. The company’s share of the global foundry market is larger
than its next three competitors combined.
* Samsung, overall a bigger chipmaker because of its dominance in memory
chips, is trying to muscle in on that goldmine and is improving its
production technology to be widely rated as the best option behind TSMC.
Companies such as Qualcomm Inc. and Nvidia Corp. have increasingly
turned to Samsung.
* Intel Corp., the last U.S. champion in the field, still has more
revenue than any other chipmaker but its market is heavily concentrated
in computer processors and production delays have made it vulnerable to
rival designers that’re taking share using TSMC.
* TSMC and Samsung do face smaller competitors including
Globalfoundries, China’s Semiconductor Manufacturing International Corp.
and Taiwan’s United Microelectronics Corp. But those rivals are at least
two to three generations behind TSMC’s technology.
Crisis Mode
The global auto industry may lose $61 billion of sales this year from
chip shortages
Source: AlixPartners
Note: Estimates based on current rate of volume losses
4. What’s happening in this race?
The two Asian giants are spending heavily to cement their dominance:
TSMC raised its envisioned capital expenditure for 2021 to as much as
$28 billion from a record $17 billion a year prior, while Samsung is
earmarking about $116 billion on a decade-long project to catch its
Taiwanese arch-rival. But China is pushing hard to catch up. It’s aimed
for years to reduce its reliance on US. technology, particularly in
chips. The Trump administration’s efforts to curb China’s technology
giants -- by barring Huawei’s access to chips and and discouraging
American investment in scores of players like SMIC and Xiaomi Corp. --
crystallized those fears. Beijing has enshrined chipmaking among its
biggest priorities in its national economic blueprints, and has pledged
to spend more than $140 billion on building a world-class domestic
semiconductor sector. But it has a long way to go. For instance, in the
automotive sector, China has developed a large number of chip design
companies in recent years but they’re still not able to make the
advanced chips needed for today’s cars.
5. How about elsewhere?
Given the difficulty in developing sophisticated chipmaking
capabilities, governments from Brussels to Washington are dangling
incentives to anyone who will build or expand advanced facilities in
their backyards. The White House is expected to sign an executive order
directing a government-wide supply chain review for critical goods in
the coming weeks, with the chip shortage a central concern behind the
probe. The Biden administration, which is putting together a longer-term
plan for chip supply, will play a key role in formulating tax incentives
for a proposed $12 billion TSMC plant in Arizona and another costlier
one Samsung is eyeing, possibly in Texas. And the European Union is
considering building an advanced semiconductor factory in Europe with
potential assistance from TSMC and Samsung. Governments including China
are now considering various ways to prop up local companies.
6. Why is it so hard to compete on chips?
Chipmaking is a high-volume business that calls for incredible
precision, along with making huge long-term bets in a field subject to
rapid change. Famous companies such as Texas Instruments Inc.,
International Business Machines Corp. and Motorola have exited or given
up trying to keep up with the most advanced chip manufacturing. Today
most companies focus on design. With only three companies -- TSMC,
Samsung and Intel -- still making advanced logic chips, and the American
company struggling to keep up, a crucial skillset has become
concentrated in the hands of just a few. Chips are made in plants that
cost billions to build and equip. They have to run flat-out 24/7 to
recoup their investment. But it’s not just that. Yield, or the amount of
good chips per batch, determines success or failure. It takes years of
knowhow and experience to get a yield of 90% out of the complex
photolithographic process used to make chips. Imagine Ford being happy
to throw away one car in ten. But chipmakers, who make millions of chips
in a process that takes three to four months to complete, are successful
if they’re hitting that mark. A foundry gobbles up enormous amounts of
water and electricity and is vulnerable to even the tiniest disruptions
(whether from dust particles or distant earthquakes). In 2019, TSMC
shipped about 10 million advanced 12-inch wafers.
7. Who benefits from the chip wars?
Even small improvements in semiconductors can deliver substantial
savings in energy and cost when multiplied across the full scale of
something like Amazon Web Services. As 5G mobile networks proliferate
and push up demand for data-heavy video and game streaming and more
people work from home, the need for newer, more power-efficient silicon
is only going to grow. One way to measure the sophistication of a chip
is so-called line-widths, or the distance between circuits. The current
standard in advanced chips is 5 nanometers or billionths of a meter,
about a hundred-thousandth of the width of a strand of hair, although
TSMC and Samsung are working on 3nm mass production by 2022. Along with
5G, the rise of artificial intelligence is another force pushing
chipmakers to innovate: AI relies on massive data processing. More
efficient or power-saving designs is also becoming a critical
consideration given the so-called Internet of Things -- a universe of
smart or connected devices from the beefiest phones to the most common
fridges and washing machines -- is expected to swell usage of chips
exponentially in coming years.
8. How does Taiwan fit into all this?
The island democracy has emerged as an industry linchpin thanks to TSMC
and an entire ecosystem geared toward high-end electronics. U.S.,
European and Japanese automakers are lobbying their governments for help
navigating the chip crunch, with Taiwan and TSMC being asked to step in.
Those pleas illustrate how TSMC’s chip-making skills have handed Taiwan
political and economic leverage in a world where technology is being
enlisted in the great power rivalry between the U.S. and China -- a
standoff unlikely to ease under the Biden administration.
The Reference Shelf
A deep dive on how the world got so dependent on Taiwan for its chips.
More QuickTakes on the internet of things, why building an electric
car is so expensive, and Taiwan’s tightrope.
Bloomberg Opinion’s Anjani Trivedi on Toyota’s chip surplus, Alex
Webb warns about a European white elephant chip plant, and Tim Culpan on
Samsung’s weak spots.
The Economist sees the geopolitical struggle over chipmaking
entering a new phase.
Biden’s team is pledging a 100-day review focused on choke points in
supply chains.
— With assistance by Paul Geitner, Yuan Gao, and Vlad Savov
--
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