The bad and (surprisingly) good of the global chip crisis, per industry honchos

biden holding wafer
Without the chip crisis, would President Biden have focused as much attention on semiconductors? In a White House appearance in June, he hoisted a silicon wafer and proclaimed, "This is infrastructure." (Live stream)

 

The global chip shortage has induced a daunting number of explanations and predictions from engineers and industry officials.  On the one hand, it is a perfect storm of events due to COVID-19 and a massive uptick in digitization and innovation creating chip demand that has hurt the car industry especially hard.

Or it represents an unprecedented opportunity for the semiconductor industry to reach world leaders such as President Biden and German Chancellor Angela Merkel to market the critical value of chips in trillions of electronics.

 Biden famously held up a silicon wafer in the White House in early June and declared: “This is infrastructure,” at the same moment average Americans were undoubtedly scratching their heads thinking, “What is all this about chips and wafers?”

RELATED: White House report puts heavy focus on domestic chip production, R&D

Or it is possible to hear both the good and bad.  All at the same time.

The chip shortage is a “perfect storm and a perfect storm and crisis for the auto industry,” said Jodi Shelton, CEO of the Global Semiconductor Alliance. She spoke during an online panel discussion with chip industry officials during Silicon Labs’ Work With event on Wednesday sponsored by Arrow Electronics.

“The reason we are here today is there was an acceleration of digitization by seven years from March 2020 to July 2021,” she said. “New technologies because of the pandemic came into fruition…with demand for cloud..and growth in 5G way more rapidly than expected.”

The auto industry is expected to lose $110 billion in 2021, panelists noted, with many of the 7 million auto workers in the U.S. temporarily sidelined because missing chips were holding off the finishing of vehicle assemblies. 

Some auto makers have cut production of less popular models and even have cut out features in certain vehicles because of a shortage of a particular chip. Tesla eliminated lumbar support for a passenger seat in one of its models over the shortage of a certain chip.

The various  worries panelists expressed were wide-ranging , from concerns about a future chip oversupply  sending prices spiraling downward to caution over massive changes in  where geographies where  chips are fabricated, thereby threatening the decades-old globalization model being used by so many chip companies.

With 29 fabs coming online in two to three years, largely as a reaction to the chip shortage, panelists wondered if there will be an oversupply of chips in coming years, sending prices downward.

Shelton worried “every government now wants their own [chip] ecosystem—how ridiculous—it’s not efficient and doesn’t work…It diminishes the value of semiconductors.”  If regions or nations work only for their own needs instead of a global approach, she warned, “decoupling economies is not going to be healthy and will haunt us.”

But well before then over at least the next year or two, there will be chip shortages for cell phones and vehicles and IoT projects , some industry leaders believing  the supply-demand curve will be out of whack until early 2024.

Tien Wu, CEO of ASE, a company that employs more than 100,000 workers that test and assemble chips in operations around the globe, predicted some reasonable  equilibrium in chip supply and demand won’t  come until  sometime  in 2023 or possibly even the  first quarter of 2024.

ASE  is adding sophisticated machines to its plants to assemble and test chips at two to three times the normal capital expenditure “but it is simply not enough” to meet demand, he said.  Having heard from many upset customers over the past 18 months, he added that his  2023 prediction for equilibrium won’t satisfy  anybody. “Either people will be upset or people will be upset!” he exclaimed.

Arrow Electronics, a global electronics distributor, is working with thousands of customers constantly to shave off the time needed to get vital chips, using AI and other supply chain tools to help predict when customers can gain access to the devices and electronics they need.

In some cases, companies are doing away with assemblies of products that require certain chips that aren’t available. In other cases, engineering teams are designing workarounds that use the most available chips and  are most likely to be available in a year or two.  OEMs are striking deals with chipmakers for a guaranteed supply for one or more  years, and many OEMs are finding second and third backups to their primary suppliers, when possible.

Alan Bird, president of Arrow’s global supply chain service, emphasized that visibility into the supply chain is  critical and will be moreso in coming years. “With visibility you get control,” he said.

Speaking of the entire chip industry, one Silicon Labs executive was frank. “One thing we don’t do well is forecast,” said Brandon Tolany, senior vice president of worldwide sales and marketing.  Increasing chipmaking capacity is difficult across the industry, he added.

“Every facet of the industry is expecting [more] capacity, but none of it comes online quickly,” Tolany said. “We can’t do it quickly enough.”

Tolany said in another one or more years, there is the possibility of an over-correction with abundant chip production. “There’s definitely risk of over-correction,” he said. “Visibility through the supply chain will keep it moving. I don’t see the risk of over-correction in the next four quarters. It has happened historically.”

Satisfying chip demand is top of mind for president of nations and board of major companies now that there is a wide recognition of the vital importance of semiconductors, panelists said.   Lead times to get chips are stretched to a year from a few months pre-pandemic.

“The good thing is [the chip shortage] has really brought the criticality of semiconductors to the forefront,” said Shelton. “People now understand what a semiconductor is. Policymakers in DC or board members at Ford, people understand the criticality of semiconductors now. Now everybody knows, even your neighbor, they can’t get a washing machine because of a shortage of semiconductors.”

Shelton cited a few example of chipmakers scrambling to add capacity, including TSMC, Samsung and GlobalFoundries.  “People are doing they best they can…I’ve never heard industry leaders as positive as they are right now,” she said.  “Fabless chip companies are more formally working with foundries or making investments to get three year forecasts and commitments. It has happened [in the past], but now it’s more often.”

A fundamental problem with producing more chips has come down to the difficulty of creating enough foundries to do  the  high-level manufacturing work.

“The reason there are not more foundries is it’s a very hard job,” Shelton said. “TSMC has done that for 30 years. It involves leading edge technology and you have to have the service and the ability to service hundreds of customers with different processes.  There’s a reason why TSMC is leading.”

Quoting an engineer at one foundry, she added, “Making a semiconductor is like shooting an arrow from Earth to hit an apple placed on the Moon.”

Not rocket science, just different.

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Editor’s Note: The chip crisis will be the subject of a panel discussion next Thursday at Sensors Converge. Register for free to attend in person in San Jose or online.