Were there two words heard with greater frequency during last week’s Sensors Converge event than “chip shortage?” This should come as no surprise, as the issue over the last year and half has come to entangle the ecosystems of multiple global industries and legislators in several countries, eventually driving the semiconductor industry to invest in new fabs and altering supply chain practices for many companies.
However, it also is becoming increasingly clear that the phrase “chip shortage” is a simplification, a shorthand way of gesturing at the massively complicated machinery of global supply chains and the idiosyncratic needs of particular industries.
For example, as Jack Gold, principal analyst with J. Gold Associates, said in a Sensors Converge stage interview with Fierce Electronics Editor Matt Hamblen, chip shortages have been caused as much by companies panicking and stockpiling in the early days of Covid as they have been by those same companies’ misunderstanding their own near-term needs for specific kinds of chips.
“Chips are the new toilet paper, or perhaps the high-tech toilet paper,” Gold said. “In the early days of Covid people were worried, they put in orders for chips they thought they would need.” They may have come to find out they didn’t need those chips, but need others, yet when they went to put in new orders, capacities already were constrained across the board. “Some of it was stockpiling, some of it was not ordering fast enough,” Gold added.
This situation was further complicated by the fact that some manufacturing sites were shut down in the early months of Covid, or operated at limited production pace to meet pandemic advisories, or even continue to be affected by occasional outbreaks
But investments in new capacity by companies such as Intel, GlobalFoundries, Samsung and others are not going to prove a solution for all the resulting supply chain constraints. “The problem with many industries is that they use old chips, not that they’re bad,” Gold said, explaining that some companies in the auto industries still use a chip built on many-years-old 90 nm technology. The chips are still being produced because the demand is there, they work well and they have been qualified through rigorous auto industry processes.
New chip fab investments are unlikely to help clients using older chips tap into deeper supply because the chip companies “are not going to be investing in 90 nm fab facilities. They are going to be investing in state-of-the-art 5 nm and 7 nm,” Gold said, adding, “So it’s going to be really hard to increase the production of some of these older chips that people are still relying on.”
This whole situation is further complicated by the fact that some manufacturing sites and materials distributors are still trying to recover their pre-pandemic pace after they were shut down in the early months of Covid. Even after reopening, some may have operated at limited production pace to meet pandemic advisories, or even continued for a time to be affected by occasional outbreaks that required workers to quarantine at home.
“We all think of the supply chain as being this super-automated thing, but it’s not,” Gold said. “There are still a lot of people involved.”
As other chip sector experts noted during a different Sensor Converge session last week, the bottlenecks involving chips and other materials have led to price hikes, and increased pricing and lack of end product inventory increasingly will become evident to consumers. “You’re going to find that some devices you want to buy that use chips, whether they are stereos, TVs, smartphones, even appliances... are in short supply.”
The good news is that constraints will lessen in the coming months and years as supply and production processes catch up to demand, and as chip companies tweak some business and supply chain practices to be more flexible and responsive to sudden changes. Gold noted that down the road somewhere, over-supply could then emerge as an issue, although it probably will be a more isolated issue than the comprehensive worldwide dilemma the semiconductor industry is still working to solve.