IC Market Repeats History While Auto and Chipmakers Work to Break the Cycle - November 25, 2022
The global electronic component supply chain is in a precarious position. Certain components still can’t be found, and others are everywhere. Recovery is not likely within the following year. Shortages will continue for most automotive components over the next several years. Consumer electronics will be facing another challenge to recovery which is excess inventory.
Supply-demand stabilization is likely not in the cards for at least the first half of 2023. Though it’s not all bad news. Automakers and chipmakers alike are joining forces to fund research and development of advanced chips. This collaboration should help fortify the global supply chain in the coming years against future shortages.
IC Market Rebound in 2023? According to Experts, Maybe.
Softening demand for consumer ICs has been rough. While chipmakers have started to take precautionary measures to limit excess stock from piling up, experts are going into 2023 with hopes for a turn around. The reason? The cyclical nature of the IC market.
Since 1970, the IC market has not experienced a significant decline that lasts three months. Out of the 7 periods IC Insights detailed in their report, all of them have either recovered by the 4th quarter or somewhere in the middle. No drop has ever lasted beyond three months.
Due to the 9% decline in the IC market during Q3 2022, experts forecast a possibility of continued decline in Q4 2022 and Q1 2023. Afterward, experts see ICs rebounding around Q2 2023 should the decline happen one month after another. So far, this isn’t the worst decline the IC market has seen either. That has not been seen since 2001 when each decline saw a joint total of 33% over the year.
According to IC Insights, the declines the market is experiencing so far are not the worst it's ever seen. Though, it should be noted that estimations about future market trends are not concrete. Current conditions born from the U.S. sanctions against China are prone to flux and the true effects won’t be known until the quarters have completed. For now, there is a conservative guess that ICs will recover by 3% in Q2 2023 despite an annual decline of 6% overall.
The series of price cuts that are planned to go into effect over the next few weeks for holiday shopping. This could result in a softer drop as order demand slows down. On the other hand, due to sanctions China experienced a decline of over 13%. This could result in a larger drop than forecasted. However, automotive IC demand continues to grow which could offset losses from consumer ICs in the market in general.
It is unlikely we will know the extent of the decline as well as the possibility of a rebound until it happens. The last few years have been plagued with a startling number of unpredictable events. While the nature of the IC market, no matter how steep a decline, has always been cyclical, this last shortage has excelled at defying expectations.
Chipmakers Slashing Production Join Forces with Automakers Struggling for Chips
After weeks of automotive struggles making headlines, it’s still a surprise to hear of companies slashing production rather than increasing. As allocation and raw material shortages plague most automotive components, excess is becoming a fearsome beast most aren’t equipped to contend with. After several years of shortages, the turnaround has many tech giants stumbling.
Samsung Electronics is preparing to reduce smartphone production in Vietnam to 40%. Samsung currently has at least several smartphone manufacturing plants across the globe aside from Vietnam in India, Brazil, Indonesia, and Turkey. Vietnam happens to be the biggest production base for Samsung’s smartphones. Vietnam previously produced up to 60% of all of Samsung’s smartphones. This is on top of South Korea’s reduction of DRAM and NAND output from Samsung that took place earlier last month.
The move is attributed to both global consumer market demand dropping and Vietnam’s labor costs rising. Samsung will attempt to further diversify the capacity of smartphone production across its various locations in the future. As they do, Samsung will continue to commit to the expansion of its advanced automotive chip production.
Stellantis has recently partnered with Infineon to secure a steady supply of silicon carbide chips in a multiyear contract. The chips, while meant for the EV section of Stellantis’s line-up, will be supplied directly to Stellantis suppliers for the second half of the 2020s. This $1.03 billion deal ensures a reservation of production capacity at Infineon meant for Stellantis.
This comes as a big gain after Stellantis CEO, Carlos Tavares, reported the shortage will likely last until 2024 before beginning to ease. With continued constraints, it’s likely to extend beyond that year. However, as automakers continue to strategize with other chipmakers to ensure reserved capacity, there is hope recovery doesn’t go too far into the future.
Toyota recently joined with Sony and others on a new initiative called “Rapidus” which will work to develop new chips by the end of the decade. The chips will cover a wide variety of applications including computers, AI systems, and self-driving cars. While the initiative has a greater purpose, that of pushing Japan towards global semiconductor relevance, Toyota’s decision is along the same line as Stellantis.
After a year of production cuts totaling a reduction of half a million cars to market, Toyota’s investment will mean strengthening their chip supply. As chipmakers continue to cut consumer electronic production, many are now beginning or improving their automotive product portfolios. In response, automakers are sharing the cost of these endeavors to ensure accessibility in the future to newer chips.
TSMC recently told automakers, and other manufacturers that depend on older legacy chips such as the 40nm and 90nm, it’s time to stop using older nodes. TSMC will no longer be expanding its capacity for older nodes and told clients to transition to 28nm. Automakers are just now expecting to move from 90 nm to 40nm industry-wide within the next 5 years.
With these declarations by chipmakers, it is pertinent for automakers to invest and collaborate with them in the coming years. Not only to ensure capacity for chips is reserved, but to be a part of the research and development for the new advanced chips. To avoid history repeating itself during the next global shortage, these strategic decisions must be made now.
Thankfully, most automakers aren’t willing to turn a blind eye to that again.
A Series of Unfortunate Events Plague Automobiles, but a Silver Lining is Visible - November 18, 2022
The past year has not been kind to automotive manufacturers. It is unlikely that 2023 will be any better.
2021 end-of-year expectations that 2022 would be the year of recovery from the chip shortage have fallen way off. The new recovery forecast is nothing short of troublesome as senior executives hesitate to put out an actual date. Based on their concerns and the current state of the global supply chain? There’s a possibility that stabilization comes not in 2023 or 2024.
But 2026 at the earliest.
Automakers See Nothing Short of “Horrible” for Next 3 to 5 Years
The hope of a late 2022 recovery from the chip shortage for automakers has been officially, and unfortunately, stamped out.
Chip constraints continue to plague the industry and the semiconductor shortage, specifically “mature” nodes that are 90nm, are frustratingly rare. Lead times are still way out due to chips on allocation or facing raw material shortages. Recent sanctions on China by the U.S. have exacerbated the problem with surging prices and severe supply constraint.
John Sicard, CEO of Kinaxis a supply chain management firm, didn’t have good news to share for automakers. “As thing stand today,” Sicard said, “we’re seeing chips that used to cost $5 go all the way up to $85.”
Sicard went on to say that “even if customers are willing to pay, manufacturers simply can’t make enough for everyone. In my opinion, the semiconductor supply crunch is here to stay for another three to five years.” Other industry experts agree with this assessment, if not imagine something worse.
Ford is currently struggling with unfinished vehicle stock. With over 40,000 unfinished cars stagnating in lots waiting for semiconductors to be installed. Ford is confident that these cars will be out of their lots by the end of the year, but Ford CFO John Lawler doesn’t see any significant relief coming in 2023.
Toyota will be halving production at half of their domestic facilities through November as they grapple with the shortage. Indian automaker, Maruti Suzuki, which has been experiencing record sales is uncertain about the future.
Senior executive director of marketing and sales, Shashank Srivastava, of Maruti Suzuki reports that a clear date on returning to normal will not be possible. The reason? “The visibility of semiconductor component availability is not there for the long term,” Srivastava said.
The new sanctions on China have only clouded the future further. Even as overall semiconductor sales drop, automotive semiconductors continue to soar to unimaginable levels. That could be why several massive chipmakers are now examining the automotive market for a chance to break in.
Chipmakers Seeing Demand Drop in Consumer Electronics Eye Automotive Sector
Passive component manufacturers including Yageo, have already shifted focus to raise capacity for automotive components. Now big chipmakers including Samsung Electronics and SK Hynix are considering the same. Specifically, in the area of high-performance chips for electric vehicles (EVs).
Samsung Electronics, SK Hynix, and South Korea overall are not known for their robust automotive component market. Samsung Electronics is a major memory semiconductor manufacturer which has recently faced major drops in the DRAM market as consumer demand falls. SK Hynix is the second largest chipmaker after Samsung Electronics in memory. Both have little market share in automotive components and South Korea only produced 2.3% of global automotive semiconductor sales in 2019.
Chipmakers have not actively sought out increasing their automotive portfolio products because of low profitability. Semiconductors within cars are not only cheap–usually, when not in the midst of a shortage–but made to last a decade at minimum. Leading-edge semiconductors today, like 5nm chips used in Apple phones, are far more profitable due to large order demand and shorter lifespan. Vehicles have no need for such chips, which is why most automakers have relied on chips that were defined as leading-edge in 2002.
Redesigning current products to be able to use newer and more advanced chips, like the 5nm nodes, is an expensive process for automotive OEMs. Chipmakers, likewise, had no incentive to increase capacity due to old tools utilized to create these older chips, that again provide low profitability. Increasing capacity would be an expensive process for the chipmaker as well as automotive orders do not make up the majority of total orders. That usually falls to consumer electronics.
The increasing demand for EVs and bans on the sale of gasoline-powered vehicles has started to change the status quo. EVs tend to rely on more advanced chips than gasoline-powered cars and with escalating demand, chipmakers are starting to see actual worthwhile profitability by increasing capacity. Likewise, with demand still soaring for traditional gas cars, more chipmakers are willing to go in on joint ventures with automakers in designing components and share the expensive costs.
Either way, more collaboration between automotive and chip manufacturers will only be beneficial overall. Lack of transparency resulted in the disastrous effects of the global shortage. Visibility and working together will only result in a stronger supply chain less prone to minor disruptions.
Automakers Forced to Limit Car Features as Sanctions Impact Supply Chain - November 11, 2022
Another year in the trenches, that’s what the automotive industry is looking forward to. Even with demand dropping across the board in different sectors, automotive OEMs continue to wrestle with chip scarcity.
Without a steady supply, other automakers will be limiting production along with Toyota, Honda, and Volvo. To keep production steady without future reductions, automakers will continue to limit features on automotive models. Toyota announced it will only hand out one smart key per vehicle.
These cuts are likely to continue now that U.S. sanctions on China have disrupted the Asian sector of the global supply chain.
Volvo Limits Production while Toyota Resorts to One Smart Key Per Car
Semiconductors continue to be a sore spot for automotive manufacturers. As we make our way through Q4 2022, some automotive OEMs are taking preemptive measures to ration semiconductor stock efficiently. Among them are Volvo and Toyota, the latter of which has had a tough 2022 from production cuts.
To keep deliveries on schedule with ravenous automotive demands, Toyota will be limiting one smart key per vehicle. This decision will apply to 14 car models on Toyota’s line up including nine Lexus model cars. Toyota aims to continue distributing cars to consumers as fast as possible and, when available, will deliver the second smart key to consumers when able.
Global sales are still expected to come in below the initial target by Toyota despite overseas sales increasing. Due to continued supply chain constraints total global supply sales fell despite the increase in consumer orders. This news is not entirely negative either, as production and sales exceeded 2021 for Toyota.
Toyota released a statement reporting that “the situation remains difficult to predict due to semiconductor shortages and Covid-19…we will continue to carefully monitor parts of the supply chain and minimize sudden decreases in production.” This way the company can continue its effort to deliver as many vehicles as possible quickly.
Volvo is facing a similar problem. There will be a temporary break in production for a week to combat semiconductor shortages. Demand for Volvo cars, like Toyota, remains steadfast and high despite mounting recession concerns. On top of this challenge are the higher costs impacting operating profits.
Volkswagen recently stated that these challenges and supply chain delays might be becoming a “permanent problem.” To combat future obstacles, VW has created a team to monitor possible threats and improve its forecasting. This comes alongside a report that VW will be lowering its delivery targets. As of now, VW is left with 150,000 unfinished cars from chip constraints.
Complicating these matters is the destabilization of the Asian sector of the global electronics supply chain.
Sanctions Throw Asian Supply Chain into Disarray
Japanese chipmaker Kioxia has a front-row seat to the current “decoupling” of the Asian global supply chain. U.S. sanctions on China have caused an immediate and widespread reaction across the still recovering and fragile electronics supply chain. Concerns continue to rise as chipmakers grapple with softening demand in some areas and continued constraints in others.
South Korea’s SK Hynix’s chip factory renovation plans have been put on hold. With the ban, SK Hynix’s renovation is currently stalled from sanctions preventing advanced U.S. chip-making equipment from being used within China’s borders. Japanese chipmakers are facing the same problems with their own factories based in China.
Samsung Electronics is also facing difficulty from both softening demand and the new sanctions on China. Their NAND flash plant in Xi’an China produces 42.5% of Samsung’s total NAND inventory. This same plant suffered setbacks earlier in 2022 during China’s Covid-19 lockdowns from the Omicron subvariant BA.2. Further constraints to the semiconductor industry will result in serious disruption, despite softening sales growth for memory chips.
Redistribution could be in the cards if sanctions continue might already be in production. India’s incentive programs and large numbers of engineering personnel have already attracted several big-name chipmakers to scout locations for new facilities. Vietnam, which is quickly proving to be another attractive destination, is drawing in other tech giants with Google among them.
The effects of the sanctions will have some negative impact, that much is true. Automakers, who have faced struggle after struggle, are once again grappling with allocation now that China has been cut off. The gray market for counterfeit components is becoming an attractive alternative even as inventory for certain components is now starting to free up.
Monitoring the market in the wake of the Asian global supply chain shake-up will be imperative for months to come. If not, we might miss the storm brewing right under our noses.
Automotive Industry Woes May Continue Beyond 2023 - November 4, 2022
The iShares Semiconductor ETF (SOXX) has seen a dramatic decline in global demand over the last few months. This negative impact on economic trends has led to production cuts for PC components and other consumer electronics. Despite this, automotive components are in the news daily accompanied by tales of constraints and frustrations.
Automotive component orders continue to skyrocket with 90 nanometer chips being out of supply and demand balance for the foreseeable future. These specific chips are used in many vehicle controllers and electric powertrains, such as electric drive inverters and actuators. These nodes make up 67% of automotive demand by 2030, resulting in many semiconductor companies increasing production of 90 nm chips.
With this expectation, it is no wonder that automakers are facing another year, if not more, of supply shortages. Other disruptions, most recently the U.S. sanctions on China, have led to further scarcity. As a result, some desperate manufacturers have resorted to seeking components, including SPC5744PFK1AMLQ9, on the gray market.
Market Reports Suggest Stabilization for Automotive Components in 2026
A report by global management consulting firm, McKinsey and Company, suggests that the automotive component shortage will not be resolved until 2026 or as far out as 2030.
Automotive OEMs heavily rely on 90nm chips. As advancements are made in autonomous driving, connectivity, and electric vehicles, the demand for 90nm chips is expected to rise from $41 billion in 2019 to $147 billion in 2030. Likewise, the yearly demand for 12inch automotive wafers could see a similar increase to the effect of 11% by 2030.
It is unlikely, based on McKinsey’s report, that automakers will redesign chips beyond 90nm due to lack of incentive. The reason being is that automotives have much longer lifespans than that of consumer electronics and order demands by automotive OEMs are far smaller than those by consumer electronics OEMs. For these reasons, automotive OEMs have far less negotiation power regarding prices or preferential treatment.
Beyond that, automotive manufacturers have a history, due to the pandemic, of ordering components in advance and then cancelling at the last minute. This exacerbated the global chip shortage we’ve faced for the last several years. Furthermore, most automotive manufacturers face more disadvantages than advantages by using advanced chips in vehicles.
Drive inverters and actuators need high voltages and currents, a benefit that does not often come from smaller node sizes with their high transistor density characteristics. All these reasons have contributed to the supply-demand imbalance that could continue far beyond 2023. The solution will only occur if more cooperation and joint investments happen between automotive OEMs and tier-one suppliers.
So far, several large automakers are taking strides to promote collaboration including Volkswagen, Mercedes-Benz, Nissan, and General Motors. Some of these solutions involve direct negotiations and commitment to orders while others include co-developing and manufacturing new chips. Tesla pioneered developing chips in house, seeking to lower its dependency on Asia for chips and mitigate supply chain bottlenecks. General Motors is seeking to accomplish the same goals by 2025 with Ford and Hyundai following close behind.
Vehicle demand is only expected to rise in the coming years. The shortage proved how disastrous chip constraints are for production output. Ironing out these kinks now so that in times of need history doesn’t repeat itself is imperative for automotive OEMs and chip manufacturers.
As U.S. Sanctions Take Effect the Gray Market Booms
Over the last several years, through the lows of the global chip shortage, OEMs from various sectors faced the same problem. Getting chip orders or stopping production. For some companies the latter was not an option. The pandemic saw a large bulk of businesses closing their doors permanently, even with rising demand for products in certain sectors.
Unable to source chips along their usual supply chain or suppliers, many companies turned to the gray market. The gray market has been a known issue for the electronics industry for years. It is defined by SourceToday as the “unauthorized sale of new, branded products diverted from authorized distribution channels.” Most of these chips are either counterfeit components or reconditioned and recycled failed or out-of-date chips.
The shortage led to a booming gray market with buyers of these components in every sector from automotive to even healthcare. As the shortage continues for automotive manufacturers and production stalls persist, gray market sellers have a supply of buyers. A supply that has recently experienced an uptick after U.S. sanctions took effect on Chinese chip makers.
Larger automotive OEMS and automotive manufacturers including Robert Bosch GmbH, Toyota, and Volkswagen have denied offers from gray market brokers for chips taking production stalls instead. Others, like Tesla, found workarounds by developing new software. Some, such as Nio Inc., Li Auto Inc., and BYD Co. have tried to source chips through these methods.
Chips in high demand, like 90nm, can go for over 500 times the original price. Despite the substantial markup on components that normally sell for one dollar, some automotive OEMs pay the price.
The counterfeit market exceeds over $75 billion in global value, a decade ago it was valued at $58 billion. With the automotive component shortage possibly lasting until 2026 according to some researchers with new U.S. sanctions added to existing constraints, business is only expected to grow.
To make sure automakers don’t turn to the gray market, it is necessary for chipmakers to help reallocate supplies as consumer electronic demands fall. The shortage is easing in certain sectors. Excess inventory might build up for those that double ordered when the shortage was at its worst. It is important that during this time companies monitor market trends to see where shortages remain, and excess is starting. These opportunities can help make sure OEMs across sectors can help one another avoid turning to the gray market for components.
Too Many or Not Enough Chips, Depends on Your Market – October 28, 2022
Automakers are struggling to find chips and consumer electronics manufacturers are drowning in them. Automotive components, unlike their consumer electronic counterparts, require a lot more investment on a foundry’s behalf to produce. Prices are rising to cope with the change and lead times, in contrast, are dropping.
2023 might turn out to be the most complex year of the shortage so far. Chip production is ceasing in some markets while ramping up in others. Unfortunately, despite dipping lead times prices only seem to rise.
Another Year of Surviving for Automakers
Automakers are in for another year of frustration and hard-to-find components. While relief is coming to some industries, 2023 will be tough for those in the automotive and industrial markets. Likewise, many of these components, including automotive microcontroller units (MCUs) and insulated-gate bipolar transistors (IGBT), are hiking prices to cope with inflated material costs.
Taiwan-based wafer foundries will be raising their prices next year, prompting negotiation talks among European, American, and Japanese automotive IDMs. Some of these foundries have mainly been producing consumer electronic components for the past several years. Consumer electronics usually make up a big portion of total global orders. Automotive, military, industrial, and medical chip orders make up a far smaller percentage of global sales.
As a result, switching capacity to automotive-grade components will require a much greater investment cost than needed for consumer electronics. These investments will require further adjustment from foundries so profit margins aren’t affected.
Foundries are only willing to be so flexible.
In addition to these concerns, Taiwan-based IC design houses see increased demand over the coming year for display driver ICs (DDI), touch and display driver integration (TDDI), timing controllers (T-Cons), and sensor and power management ICs with others continuing to grow. This growth is expected to continue even if demand for automotives falls as recession concerns bloom.
Some IC houses are expected to add DDI and TDDI production lines to their portfolios for competitive advantages. With these investments, there is hope that it won’t take long for the automotive industry to finally see supply-demand stabilization.
Though many auto leaders, such as Volkswagen, do not see the automotive chip shortage being solved in 2023.
PC Shipments are Down While Automotive ICs Soar
Unlike automotive components, global PC shipments are down 15% as of Q3 2022. Shrinking demand and uneven supply has contributed to the decline, but even with the significant drop sales are still well above pre-pandemic levels. Fortunately, most companies have already expected sales to fall.
Jitesh Ubrani, a research manager for IDC’s Mobility and Consumer Device Trackers, reported that “promotional activity from Apple and other players has helped soften the fall and reduce channel inventory by a couple weeks across the board.” Ubrani went on to say that in response to the new lows many have reduced orders, except for Apple.
As promotional campaigns run and orders diminish, prices are also facing possible reversals.
Throughout the pandemic many manufacturers increased prices to offset the shipping and material rates. As production cuts continue it is likely that certain consumer components will see prices bottoming out. This is especially true for PCs and large-size display driver ICs (DDIs).
Some IC design houses, such as Taiwan-based IC producers, are targeting automotive and industrial segments now that consumer electronic sales are falling off. The difference between automotive and industrial components in comparison to consumer electronics is lifecycles. The lifecycle of an automotive component is far greater than a consumer part. However, some of these IC designers see the shift as a positive migration.
The reason? It will continue to sustain their overall product ASP growth and generate more sales from a wider target audience. If the shortage taught us anything, it’s that everyone needs electronic components. So, why limit yourself?
Weakening Demands Cause Lead Times to Drop
While auto woes will remain, there is a good thing to come from declining component sales. As we reflect on the negative growth reported by the Electronic Component Sales Trent (ECST) let's turn our attention to the positive. How lead times are responding to the diminishing demand.
For the past several quarters, most of the industry has been looking at lead times that reach upward of 70 weeks. Sometimes more. That put many components' final delivery date years into the future during the worst of the pandemic. Now, we are finally starting to see lead times take a step back rather than forward.
End-of-market updates reveal that this softening will give automotive, medical, and industrial electronic markets the chance to rebound. The ECIA saw growth in September and October for the automotive and aerospace/military sectors. Out of all the information that came out of the ECST report for September, the shrinking lead times were the most positive.
Many chipmakers are going into 2023 with a different fear, one not of endlessly stretching lead times but of inventories piling up. The nature of shortages tends to be cyclical, from lack of supply to oversupply, and back to stabilization. If companies take note of market changes now, many will go into the future better prepared to handle the oncoming time of excess.
It will be more important than ever before to arm yourself with the tools to manage excess inventory.
Electronic Shortage Could Continue Through 2023 Even with Cooling Demands - October 14, 2022
To be or not to be, that is the question. No, this isn’t a rendition of Hamlet’s famous monologue, but with how shortage updates change, it’s ironically close.
Speculation on when the electronic shortage is expected to end has been going on since it started. Industry leaders, such as Pat Gelsinger of Intel, in 2021 saw stabilization in late 2022 and early 2023. In early 2022, the war in Ukraine broke out and China locked down from Covid-19 outbreaks. The supply chain was too fragile from disruptions over 2021 to withstand such blows.
Now in Q3 2022, the topic of the semiconductor shortage ending is again in flux. Some experts see cooling demand for components as a good sign the shortage might even end before 2022 is over. Others, such as Carlos Tavares of Stellantis, think we’re only halfway through the shortage. That the end will come in 2024.
What is more likely, 2023 or 2024? The shortage’s end really depends on the industry you’re in.
South Korea Slashes Chip Production Output
For the first time in four years, South Korea experienced a decline in semiconductor output from its factories. In August, production slipped 1.7%, a massive shock to the 17.3% gain it saw in July. Chip inventories in contrast soared up to 67.3% as factory shipments dropped 20.4% in August.
This drop is on top of Micron Technology announcing a weak forecast for Q3 2022 and that it will be working fast to slow production. Likewise, Samsung Electronics warned of a dim outlook for the second half of 2022’s fiscal year. This is in response to Samsung’s main product, DRAM chips, taking a sharp decline between May and July.
The semiconductor industry is one of the top exporters in the industrial sector of South Korea which relies on trade to fuel its economy. High energy prices, which started in response to the war in Ukraine, have made chip transport and creation more expensive than usual. Pair that with lowering demand and it’s no wonder that against other countries in East Asia the Korean won has depreciated significantly.
South Korea isn’t the only country where chipmakers are lowering production either. Kioxia in Japan intends to decrease production volume by 30% for its flash memory facilities. Micron Technology sees that DRAM supply will grow below demand growth in 2023 leading to the lowest ever within the industry. The same can be said for the NAND market.
These indicators might be pointing to what many experts have been concerned with since the start of the shortage. A period of excess. As chipmakers try to lower production to match the lessening demand it is important to remember that for some of us, we’re not out of the shortage yet.
Stabilization across the market, of supply-demand, might not be reached for everyone until 2024.
Stellantis CEO: Electronic Shortage Will Last Until 2024
In an interview with the newspaper Le Parisien, Carlos Tavares, the CEO of Stellantis, sees semiconductors remaining tight until the end of 2023. “The situation,” Tavares said, “will remain very complicated until the end of 2023, then it will ease a little.”
Cooling demand might be causing some chip manufacturers to panic, but automakers are still struggling to find chips. At the end of September, numerous automotive manufacturers announced slashes in production output for vehicles. Toyota, Honda, Volkswagen, and Stellantis were among those that cited chip concerns being the reason for these cuts. Murat Aksel, chief purchasing officer of Volkswagen, believes there will still be “a structural shortfall in semiconductors up to and including 2023.”
The majority of these concerns involve rebuilding capacity of chips, which takes years to build back up. General Motors CEO, Mary Barra, told CBS Mornings that the semiconductor shortage will last into next year and “maybe a little beyond.” Though auto giants aren’t the only ones suffering from continued chip constraints. Pat Gelsinger, CEO of Intel, said earlier in the year the chip shortage will last into 2024.
A report by Bain & Company, a management consulting company, agrees that the chip shortage won’t end on a single date for anyone. Disruptions in the form of bad weather and geopolitical tension will continue to cause operational disruptions. Each component faces their own timeline of resolution such as12-inch wafers with transistors between 28nm to 130nm currently struggling alongside 6-inch and 8-inch wafers.
Some companies are starting to see relief this year from cooling consumer demands, that is true. That does not mean that a wild card disruption event couldn’t be just around the corner. The fastest way to relief, admittedly, is a softening demand from a slowdown of the global economy. However, recession does come with its own complications.
The takeaway here is simple: overall, the semiconductor shortage ending for everyone will not happen until 2024. The shortage will lessen and stabilize for specific industries step by step over the next year. This requires demand to continue cooling, which seems to be true considering market forecasts. All it takes to upset this tentative balance is more supply chain disruption.
2022 had looked like the year to bounce back until war in Ukraine broke out and China suffered outbreaks of Covid-19. We don’t know what could happen next, but we’ve learned a lot from these past years. With those experiences under our belt, we are sure to handle the next disruption more effectively.
Good News on the Horizon, Semiconductor Shortage End in Sight - October 7, 2022
The semiconductor shortage might be coming to an end sooner than we expect. The sky-high demands that prolonged the shortage’s effects on the supply chain are starting to slow. Global fears of an economic recession are cooling consumer orders and giving chip manufacturers time to catch up.
Lead time forecasts for many semiconductors over the next three months show stability. Though this good change comes with a price: semiconductor sales are starting to lose momentum. This change might be indicative of a period of excess in the coming years, but for now it is speculative.
As we all take a collective sigh of relief, it is important to look back on what can be done in the future against such monumental shortages.
Qualcomm Says Digitalization is the Key to Surviving Future Challenges
The shortage hasn’t been easy for anyone in the electronic components industry. Qualcomm is no exception. Qualcomm CEO Cristian Amon believes that even if the Covid-19 pandemic hadn’t taken place the global chip shortage still would have. The demand for consumer electronics such as phones, game consoles, and computers on top of automotive parts was only continuing to increase.
If it has an electric pulse, it has a chip. A lot of things today have some form of chip in them, semiconductors being the most common. The importance of electronic component access wasn’t a new topic of discussion. Concerns over accessibility were taking place before the pandemic drove everything into hyperdrive.
It did, however, damage it enough that disruptions that occurred post-outbreak hit harder.
Many of these interruptions, such as the fire at the Renesas plant in Japan and the severe winter storms in Texas, weren’t Covid-19 related. Though that’s not to say the pandemic didn’t worsen an already fragile supply chain. The reliance on chips from one geopolitical area of the world complicated chip accessibility during periods of Covid-19 lockdowns. An example of this was China’s Covid-19 lockdowns in early March 2022 that once again injured a recovering supply chain.
The solution is complicated. In preparation for future shortages that might be worse than the last, many companies are diversifying their supply chains. World governments are proposing incentive plans to draw in semiconductor manufacturers. Qualcomm has another solution.
It is time to embrace digitalization. The best way to do that is by pushing for automation and the use of AI software to help prepare for the next disruption. Qualcomm has made plans to increase the amount of automation along their chip assembly lines. The pandemic sent staff home and the following labor crisis from the Great Resignation hurt manufacturers everywhere. Without enough personnel to operate production lines, many fabs went dark.
Unlike a traditional manufacturing plant semiconductor fabs don’t just “turn back on.” It takes time for a fab to get up and running again. Automation will be able to prevent such situations from arising in the future, by keeping the “lights” on. At the same time, smart tools including AI can monitor market developments and plan for them concurrently. This type of planning, concurrent planning, is to help better prepare for future disruptions.
It is important to embrace these kinds of changes now, despite the lingering effects of the shortage. As many of us learned over the past few years, the global supply chain is prone to disruption. If things aren’t done now, there might not be a chance to do so in the future.
So as the market slows down, for now, it’s time to embrace digitalization.
The Semiconductor Shortage is Slowing but Expect Some Disruptions to Persist
Even with a forecast of cloudy skies in the industry, there is still a silver lining. The Global Supply Chain Pressure Index, which is maintained by the Federal Reserve Bank of New York, has “eased considerably over the past few months.” Furthermore, the Supplier Deliveries Index has posted its best number since January of 2022. Easement is coming, though it may take some time to get there.
Manufacturers expect to still grapple with labor constraints, inflation, rising costs, and the lingering shortage-fueled challenges throughout 2023. According to the CEO of the National Association of Manufacturers, Jay Timmons, optimism has decreased as 2022 comes to an end. Beneath that, the underlying goal remains the same.
We must persist.
Labor shortages, supply chain disruptions, global crises and inflation have been taking their toll. Higher prices make it harder to compete and retaining a quality workforce continues to be a massive obstacle. As companies make plans for 2023 many of the same issues that plagued 2022 will continue into the new year. These issues come with both good and bad news.
It is important to take the good into consideration after several years of bad. While fears of a global recession and inflation are driving up prices, the lack of demand is stabilizing lead times. While predictions on when the shortage will truly end are not an exact science, 2023 might be it.
We still have 3 full months of 2022 and 10.8% of manufacturers see relief coming by the end of the year. In October 2021, Pat Gelsinger of Intel saw relief in 2023. While the war in Ukraine and the Covid-19 lockdowns in China seemed to destroy that possibility early in the year, it might turn out to be true.
Production Cuts Planned as End of the Year Creeps In - September 30, 2022
As the year enters its final sprint toward 2023, the shortage woes and when they might end are at the forefront of everyone’s mind. Around the end of 2021, experts from the industry including Pat Gelsinger, CEO of Intel, predicted a stabilization of supply demand in late 2022 and early 2023. Those expectations changed as the first few months of 2022 brought further destabilization. The war in Ukraine and the Covid-19 lockdowns in China threw a wrench in the vulnerable and recovering supply chain.
2024 might be the final year of the shortage if this keeps up.
While there has been some stabilization over the summer, the shortage continues to wreak havoc on many industries. The auto industry is already preparing for cuts to production output while some industries, such as the defense sector, are now cannibalizing their own products for those precious chip supplies.
Toyota, Honda, Volkswagen and More Slash Production Due to Shortage
Automakers have not had an easy go during the semiconductor shortage. Most automotive companies operate on just-in-time (JIT) ordering. As a result, when the pandemic hit orders were canceled in preparation for what was expected to be a downturn in purchases. In contrast, businesses adapted to work-from-home (WFH) models. The demand for chips skyrocketed in the face of increased purchases of digital equipment such as computers, headsets, consoles, and more. Likewise, the demand for medical equipment such as ventilators jumped due to symptoms from Covid-19.
So, what happened to those JIT orders automakers relied on? As lead times rose, some reaching a length of 2 years, automakers were left with two choices. It came down to production stalls as they awaited chip orders or removing certain functions from vehicles to get them to market.
As the shortage stretched on automakers have been a key indicator of shortage easement or continuation. This decision going forward might be indicative of a longer lasting chip shortage. One that goes into 2024, as Pat Gelsinger now believes.
On Thursday, 9/22, Toyota made an announcement of 800,000 vehicles in production worldwide for October. That’s 100,000 less than the average monthly production plan. While this is an increase in vehicles from October of last year, 627,452, it falls short of Toyota’s original forecast of 900,000 vehicles per month from September through November. What is concerning about this news is that this is the time for Toyota to bounce back from the production shortfall caused by the shortage.
Toyota’s competitor, Honda, also made an announcement on 9/22. revealing it would “reduce car output by 40%.” This will follow a planned reduction of activity by 30% of a separate assembly plant. This is the second time this year that Honda has had to decrease output by 40%.
Volkswagen head of procurement Murat Askel noted geopolitical concerns with leading chip manufacturers have led to new and challenging issues. Prior to the war in Ukraine and supply issues from China regarding Covid-19 lockdowns, Askel predicted a resolution this year. Now, he expects it to extend beyond 2023. That’s even with the recent shift Volkswagen has taken by decreasing reliance on South Korean semiconductor manufacturers to European manufacturer STMicroelectronics and TSMC in Taiwan.
Radios On the Chopping Block as Defense Industries Seek Out Chips
Defense firm L3Harris has radios back on the menu as chip supplies dry up. Chief Financial Officer of L3Harris, Michelle Turner, announced that a previous supplier was unable to meet demand. As they entered the fiscal quarter in July, L3Harris had to find circuits, specifically programmable gate arrays, from another source.
That source? Old radios that were being disposed by a customer. “We went and took those radios back, we broke them down,” Turner said. “We’re using the circuits within those radios to rebuild them into the current formation, to be able to meet demand and deliver.” Supply problems have continued to cause pain throughout the year.
Raytheon Technologies, another U.S. defense firm has echoed L3Harris in similar statements by CEO Greg Hayes. “We don’t see [the chip shortage] rectifying itself until probably sometime in the middle of next year if we’re lucky.” Raytheon’s Javelin and Stinger missiles have been paralyzed by semiconductor shortage. These missiles are specifically being used by the U.S. to aid efforts in Ukraine.
Defense firms like L3Harris, Raytheon Technologies, and Lockheed Martin use the same chip foundries as everyone else. Like automakers, defense firms usually send out specialized orders for products in short production runs. This usually isn’t cost-effective for chip manufacturers, so they prioritize large-scale commercial work over defense orders.
The solution to these problems, Deputy Defense Secretary Kathleen Hicks said in a visit to Indiana’s SkyWater Technology that the passage of the CHIPS Act will “ensure that the U.S. has and makes the [chips] that power everything.” With how desperate the search has been for electronic components over the past several years, it's unlikely the lessons will be forgotten soon. In this modern age, access to chips is everything.
It's a Cruel (Cruel) Cruel Summer - July 20, 2022
Intel announced it would raise its product prices in the third quarter due to sharply increasing overhead costs. And TSMC stated its production capacity would remain tight through 2022 even amid softening consumer electronics demand.
Intel to Raise Chip Prices in Q3
Intel recently informed its customers that its microprocessors, Wi-Fi components, and peripheral chips prices are going up this fall. The world’s largest IDM is making the upward adjustment to its portfolio amid rising raw materials and production costs.
Intel hasn’t determined how much more expensive its products will be in the third quarter, but Nikkei Asia’s sources said the cost increases would range between single-digits and up to 20 percent.
The chipmaker signaled that a price increase was coming during its April earnings call. CEO Pat Gelsinger said its product mix would change to feature more expensive components. The firm’s executives also mentioned that parts of its catalog would become more expensive following a 7percent year-over-year revenue decrease in Q1.
Moreover, Intel is grappling with the effects of rising global inflation.
Several raw material suppliers informed their clients that a 20 percent price jump is forthcoming. Its operational expenditures are spiking just as interest in consumer electronics is flattening due to widespread economic uncertainty. With inflation in the United States climbing to 9.1 percent in June, device makers anticipate underwhelming sales in the second half of this year.
The firm also warned that the global chip crisis would likely continue until 2024 due to a production equipment bottleneck in May. It offered a grim outlook because top chip manufacturing machinery providers have 18-month lead times for their tools. Intel believes the longer-than-expected delivery schedules will undercut the industry's efforts to recover from its multiyear supply-demand imbalance.
TSMC Capacity to Remain Tight Through 2022
TSMC recently told investors believes its production capacity will be constrained through the end of 2022. Nevertheless, the corporation projects that its annual revenue will rise by 35 percent, up from its prediction of 30 percent earlier this year. CEO C.C. Wei explained that the company's robust outlook is due to strong orders from its automotive and data center clients.
Despite its positive outlook, the world’s top foremost contract chipmaker is not above the problems facing the semiconductor industry.
Wei told analysts that TSMC had seen a significant drop-off in orders for consumer electronics components. He also revealed that some of its customers have built up microelectronics stockpiles following the COVID-19 outbreak. The executive expects the excess inventory issue will be resolved in the first half of 2023.
In addition, the company is facing many of the same profitability challenges as Intel.
TSMC’s leaders admitted that mounting raw materials costs and inflationary pressure have cut into its bottom line. It cut its planned 2022capital expenditures from $44 billion to $40 billion as chipmaking equipment lead times have reached 18 months. The firm is also facing higher utility costs as Taiwan recently raised electricity rates for industrial users by 15 percent.
Because of those challenges, the foundry will raise its production fees by 5to 8 percent in early 2023. It announced plans to charge 10to 20 percent more for its services during the third quarter in May. Its recent and future price hikes will be felt downstream as its cutting-edge technology makes it the only option for its biggest clients.
That said, TSMC, Samsung, and Intel are in the process of building massive chip factories in the United States. Once those plants go online, the semiconductor supply chain will be stronger than ever, and the competition between providers will drive down pricing for OEMs, CMs, and EMSproviders. As such, it’s worth remembering that no matter how cruel, all summers end.
Two Steps Forward, One Step Back – July 14, 2022
Market watchers anticipate that long-time supply constraint for networking components will ease up in the second half of 2022. And two Japanese chipmakers experienced factory shutdowns due to harsh weather conditions.
Network Components Availability to Get Better in 2H22
Market experts found that lead time for some networking components has reached 52 weeks, but product availability in that IC category should get better later this year.
As opposed to consumer electronic chip providers, communications and data center networking chip manufacturers have a positive outlook for 2H22. Many providers have built up record inventories because of ongoing raw materials shortages. Despite concerns about creating a supply glut, several chipmakers have bullish forecasts even with rising inflationary pressure and ongoing geopolitical conflicts.
Arcadyan Technology, a wireless LAN and broadband gateway vendor, improved its year-over-year revenue by 7.6 percent during the first five months of this year. The firm experienced operational disruption in April due to China’s COVID-19 lockdowns, but it had sales of $140.2 million in May. It also has an order volume of 85 to 90 percent even with year delivery schedules.
Analysts expect Arcadyan will post even more robust income in the second half by transitioning its customers from 28 law mm to 16mm products.
Sercomm, a wireless networking gear supplier, has enjoyed significant revenue growth thanks to strong demand from its telecom customers. The company made $739.7 million from January to May, up 38.54 percent annually. It anticipates having an 85 percent order fulfillment rate in Q3 2022, which would be a 30 percent increase from 2021.
Until greater production capacity is available, networking chip buyers will continue to endure high lead times. But manufacturing technology upgrades and changing inventory practices should ease the parts bottleneck in the coming months.
Two Japanese Chipmakers Experience Disruption Due to Bad Weather
Micron Technology and Renesas Electronics recently faced unexpected factory shutdowns due to bad weather in their home country of Japan.
Micron revealed its shuttered Hiroshima DRAM factory suffered a “prolonged power outage” on July 8 because of inclement local weather. The facility has since resumed production at a lower-than-normal rate and wants to ramp up its output soon. The company is still assessing the impact of the power failure on its operations and determining if it needs to destroy any damaged wafers. Moreover, Gartner told The Register it doesn’t anticipate the manufacturing complex’s operational interruption to impact the global DRAM supply.
Because of the event, Micron expects to report financial losses in Q4 2022 and Q1 2023.
Along similar lines, Renesas’ Kumamoto factory went off-line after its powerline was struck by lightning on July 6. Consequently, the facility’s voltage immediately plunged and shut down 90 percent of its manufacturing equipment. The chipmaker explained that the event, caused by Typhoon Aere, likely ruined one week's worth of in-production electronic components.
Renesas announced the plant had resumed full production on July 11. Last year, the component maker represented 17 percent of the global microcontroller unit market, up 24 percent year-over-year. The impact of its factory closure on the already constrained MCU supply is unknown.
Prices Cuts & Demand Jumps - July 6, 2022
Samsung could cut prices on its memory catalog later this year to improve its market standing. And robust automotive electronic component demand is having a positive impact on the global chip shortage.
Samsung Might Slash Memory Prices in 2H22
Samsung is reportedly considering slashing memory prices in the second half of 2022 to rope its sales. Because of its leading market position, DigiTimes believes the conglomerate’s change in strategy could prompt a pricing war within the segment. The publication predicted that memory costs would fall by 10 percent sequentially in the third quarter.
Samsung is likely changing tack in response to weak demand for consumer electronic devices. The firm cut its production quotas for mobile devices for the same reason last month.
The South Korean tech giant is not the only memory manufacturer to feel the impact of muted enthusiasm for personal computers, smartphones, and appliances. Micron Technology CEO Sanjay Mehrotra recently told analysts that mobile device demand would be 130 million units lower than expected. The executive also anticipates that 30 million fewer PCs will be shipped this year than predicted.
Micron intends to reduce its “supply growth trajectory” due to soft end-market interest.
DigiTimes noted SSDs and other storage products experienced underwhelming sales during China’s 618 shopping festival. As a result, chipmakers and downstream vendors have accelerated their plans to make an inventory correction.
Despite that disappointing outcome, there is reason to believe that the holiday purchasing season will reinvigorate the consumer electronic market. Forbes stated that 618 sales reached $89.4 billion, up 26.4 percent year-over-year. The event’s success indicates that Chinese consumers could resume their robust spending habits as the year progresses and major handset, notebook, and home entertainment manufacturers release new products.
Automotive Components Demand Up
According to IDC, demand for automotive electronic components rose by 26.7 percent in 2021, which exceeds every industry aside from the industrial sector. In addition, the market intelligence provider believes the market will continue growing throughout 2022 and that prediction is being realized at the manufacturing level.
Several backend packaging and testing companies have seen a surge in orders for automotive chips. Ardentec, ASE Group, King Yuan Electronics, Powertech Technology (PTI), and Sigurd Microelectronics have order visibility through year’s end for highly sought-after components like vehicle MCUs. Notably, those firms provide manufacturing support to Texas Instruments, Infineon Technologies, NXP Semiconductors, and onsemi.
The jump in demand for vehicle parts is fortuitous for those companies as interest in consumer electronics parts has dwindled recently.
Similarly, Nan Ya Plastics is working on expanding its sales of automotive component substrates this year. The Taiwanese manufacturer derived 7 to 8 percent of its annual revenue from vehicle ICs in 2021, and it’s aiming for 10 percent in 2022. It is also expanding its substrate manufacturing capacity at its Shulian plant and intends to increase output by Q1 2023.
Those market trends should prove helpful to OEMs, CMs, and EMS providers in the near term. For the last 18 months, automotive electronic components have been harder to find and more expensive than usual due to the global chip shortage. But availability and pricing should return to normal soon as supply is finally catching up with demand.
Bottlenecks & Fraud – June 30, 2022
Automotive conglomerate Stellantis had to shutter multiple factories amid ongoing chip shortages. And ERAI noted wire fraud and counterfeit component incidences spiked in 2021.
Stellantis Shutters Plants Due to Chip Shortages
Stellantis recently announced it would close several of its car factories amid ongoing chip shortages.
The automotive conglomerate stated it would pause production at its Melfi, Italy, plant from June 28 to July 2. The firm’s assembly facility, which makes Jeep and Fiat vehicles, has only been active for seven days this month. Last week, it shuttered its assembly sites in Rennes and Sochaux, France, because of electronic components bottlenecks. Those interruptions will curtail the manufacturer’s output of Citroen and Peugeot automobiles.
Stellantis also shut down its Windsor, Ontario, Chrysler Pacifica plant and Toluca, Mexico Jeep, Compass factory in early June. A company spokesman told Automotive News Europe that it determined the scheduling for its assembly centers on a day-by-day basis since the pandemic began. Moreover, it doesn’t expect its microelectronics supplies to stabilize until next year.
AutoForecast Solutions estimates carmakers cut their planned production quotas by 2 million units this year because of parts shortfalls. However, the parts bottleneck has eased for certain auto companies. Volkswagen expects a strong half this year as vehicle components have become more accessible. Moreover, Daimler Truck Holdings and Mercedes Benz revealed that their operations are no longer affected by the chip shortage.
Chip Industry Fraud Cases Spiked in 2021
Reuters recently reported that semiconductor industry wire fraud cases spiked in 2021.
ERAI recorded 101 cases of criminals deceiving into transferring funds for electronic components that never materialized, up from 70 in 2020. The organization noted that firms fell prey to wire fraud schemes when trying to procure parts from unvetted suppliers. Because of the ongoing chip shortage, OEMs, CMs, and EMS providers feel they have no option but to deal with unproven providers to keep their production lines running.
However, electronics manufacturers have more than just deceptive providers to worry about
ERAI found counterfeit component incidents rose from 463 in 2020 to 504 last year. The firm recorded 963 cases of fake part deliveries in 2019. It attributes the drop-off to China's recent COVID-19 flareups. Beijing’s lockdowns likely made it harder for fraudsters to create and distribute phony microelectronics.
ERAI stated that counterfeit chips have become more sophisticated to evade detection. For that reason, OEMs, CMs, and EMS companies have even more incentive to be selective in expanding their supply chains. Unproven distributors with offerings that seem too good to be true often exploit difficult market conditions. But there are trustworthy options available that can provide firms with the support they need.
For example, Sourcengine has spent the last five years supplying manufacturers with electronic components that can’t be found anywhere else. Moreover, the e-commerce marketplace utilizes a 74-step inspection process to prevent counterfeit parts from entering its customers’ supply chains. It also maintains a real-time supplier rating system to ensure that all 3,500 vendors it does business with are on the level.
A Mixed Bag – June 22, 2022
Major players in the automotive and video games industries have found that the global chip shortage has started easing up. However, market analysts forecast a high single-digit decline in DRAM pricing due to soft consumer-electronics demand.
Chip Shortage Easing up In Multiple Segments
After 18 months of a severe across-the-board electronic components bottleneck, the chip crunch is easing up.
Daimler Truck Holdings, the world’s top commercial ground transportation manufacturer, told Bloomberg parts shortfalls have become less intense. The firm noted improved supply support as well-timed as demand is robust. Moreover, it doesn’t expect current macroeconomic instability to impact its operations going forward.
Daimler Truck’s fellow German auto giant Mercedes-Benz also noted the chip shortage is no longer disrupting its production work.
Sony reportedly plans to ramp up PlayStation 5 production in 2022 and 2023 thanks to greater component availability. The conglomerate has struggled to fulfill consumer interest in its latest console since its launch in November 2020. Ongoing part constraints meant the company could not meet its 2021 sales projection. Market insiders believe rising inflation might curtail consumer interest, but visibility for this year’s holiday sales season remains limited.
Sony intends to move 18 million PS5s through March 2023, a 56 percent year-over-year increase thanks to greater supply support.
In addition, the Market Intelligence and Consulting Institute (MIC) forecast the chip crunch will ease up next year. The Taipei-based group pointed out the industry’s foundry service providers will expand their capacity by 10 percent in 2022 and 7 percent in 2023. Consequently, MIC anticipates 8-inch silicon wafer production will reach 10 million units per month, up from 8 million in 2020.
DRAM Pricing to Fall by 3-8 Percent in Q3 2022
TrendForce recently forecast that DRAM pricing will fall in the third quarter by 3 to 8 percent.
The market research company explained the memory type is becoming less expensive due to a drop-off in consumer end-market demand. The organization expects DDR3 and DDR4 SRAM modules used in TVs and laptops to become more affordable because the public isn’t enthusiastic about buying new electronics. It anticipates mobile device and PC DRAM will experience a high single-digit pricing decline for the same reason.
TrendForce predicts that graphics and server volatile memory pricing will only fall by 0 to 5 percent. Nevertheless, the drop-off in consumer electronics interest has created an oversupply glut from as OEMs are looking to reduce inventory.
Traditionally, manufacturers tend to stockpile electronic components in the current quarter ahead of the holiday season. But Russia’s war in Ukraine, China’s COVID-19 lockdowns, and rising global inflation has created significant economic uncertainty. Until greater clarity about shopper purchasing behavior emerges, the DRAM category will likely continue its downward pricing trend.
Big Changes Coming to the Semiconductor Supply Chain - June 15, 2022
Companies with capacity in the world’s semiconductor production hubs are changing how they ship their products. And a leading supplier of analog components told its partners that the supply tightness would ease up later this year.
Electronic Components Logistics Paradigm Shift
DigiTimes recently posted a report stating that recent electronic components supply change complications have prompted a logistics paradigm shift.
The media outlet noted that 90 percent of global trade by weight is facilitated through sea freight shipments. But due to recent events, the traditional method of moving goods between nations has become considerably less appealing. Last year, on-time container ship deliveries fell by 28.1 percent year-over-year, and the average delay reached 6.8 days.
At the same time, sea freight transport costs grew 6 to 7 times compared to their pre-pandemic levels.
A combination of worker shortages, port congestion, canal obstructions, vessel availability problems, and the coronavirus pandemic has prompted manufacturers to rely more heavily on air transport. Notably, electronic components manufacturing hubs in East and Southeast Asia have increased their airfreight shipments by 10 to over 30 percent between 2020 and 2021.
Market watchers believe conditions in the maritime shipping sector won’t improve until 2023.
Accordingly, airfreight shipments will likely become more common in the semiconductor market as the chip shortage has significantly driven up microelectronic device pricing. However, Russia’s war in Ukraine contributed to a global inflation trend that has made aviation fuel considerably more expensive and air transportation more difficult.
The takeaway for OEMs, CMs, and EMS companies is that electronic parts could see an across-the-board price hike this year.
Good News About the Analog Chip Bottleneck
Although the electronics parts shortage has been a major global crisis since late 2020, the analog segment has been exceptionally tight. Consumer electronics and electric vehicle purchases soared after the world began adjusting to the realities of living with COVID-19. Unfortunately, the production layoff that followed the coronavirus outbreak created a supply-demand gap that increased prices and pushed lead times past the one-year mark.
However, Texas Instruments has indicated that its power management integrated circuits (PMICs), MCUs, and other analog components will be more accessible in the near future.
The chipmaker probably provided reassurances about improved supply availability because it’s spent the last few years working to aggressively expand its production capacity.
It recently broke ground on a sprawling manufacturing site in Sherman, Texas. When it comes online in 2025, the $30 billion complex will make 300mm silicon wafers in four fabs staffed by up to 3,000 people. Fifty miles south, the corporation is putting the finishing touches on a plant that will open for business in late 2022. And it plans to open a factory in Lehi, Utah, that is scheduled to come online in early 2023.
Texas Instruments’ strategic planning could enable automotive OEMs worldwide to kick into high gear in months rather than years.
Dawn of a New Day? – June 8, 2022
After years of geopolitical tensions, lockdowns, and shortages, the electronic components industry is showing signs of recovery.
New GPUs to Drive Demand in 2H22
AMD and Nvidia, market leaders in the graphic processor unit market, are expected to release new versions of their flagship consumer products in the second half of 2022. DigiTimes believes those refreshed GPUs will kick off a new wave of end-market demand.
The publication’s sources note that the next-generation hardware will be fabricated using a 5nm manufacturing process, which promises double-digit clock speed and efficiency improvements.
Auras Technology, a thermal solution provider, is preparing to ship a new line of vapor chambers that can properly cool 5nm GPUs later this month. Because of the complexity of making the new temperature modulation parts, the product family will be 20 to 30 percent more expensive than parts from the previous generation.
Sun Max Tech, a fan maker, also anticipates AMD and Nvidia’s upcoming products to be big sellers this year.
The Taiwanese company recently developed new parts that can manage the heat generated by GPUs with high-performance computing-level processing power. Last year, it expanded its IP portfolio by acquiring hundreds of patents in Greater China, the United States, Japan, and Europe. The firm expects its R&D investments to pay off in the form of “good growth momentum” in 2H22.
Based on DigiTimes findings, OEMs, CMs, and EMS companies could benefit by debuting premium gaming computers ahead of the holiday season. But firms should ensure that their suppliers have the resources necessary to procure highly sought-after components before Christmas lights start appearing on store shelves.
Chinese Notebook Factories Getting Back to Normal
Notebook manufacturers with factories in Shanghai have dealt with significant production and logistics problems since the start of the year due to local COVID-19 flareups. But after regional authorities lifted lockdown restrictions earlier this month, life has started to return to normal.
Amazon device assembler Inventec revealed that its Shanghai plant has a 70 percent utilization rate, up from 50 in June. Quanta Computer, an Apple, Dell, and Alienware supplier, is bringing its mainland factory back to full strength. Both ODMs should be able to increase this month's output as rural workers can return to their urban-based jobs.
Electronic components makers with production facilities in Kunshan have recently resumed operations. Moreover, those providers are working hard to compensate for decreased output in April and May. Supply bottlenecks are evaporating as logistics providers can move more easily between the two Chinese cities.
Since East Asia makes most of the world's electronics, the recovery of its manufacturing sector is good news. Things are improving after several years of raw material scarcity, production disruptions, and transportation challenges. If the storm clouds continue parting, the semiconductor industry could see the dawn of a new day before year’s end.
A Very Volatile Memory Market - June 1, 2022
Industry insiders predict that memory pricing will experience significant volatility in the second half of 2022.
DigiTimes expects NOR flash chip prices to decline because of weak demand for consumer electronics. It also anticipates demand for NAND modules to pick up in Q3, leading to pricing and availability challenges.
NOR Flash Pricing to Fall in Q3
Right now, the NOR flash market is very anxious.
Russia’s war in Ukraine, COVID-19 lockdowns in China, and rising inflation have dampened the public’s enthusiasm for consumer electronics. Since people are buying new smartphones, TVs, and computers, memory chipmakers are struggling to offload their stock. Consequently, suppliers lowered their component prices in the second quarter, especially for their low-density products.
Industry insiders believe memory vendors will cut their contract prices by 3 percent in Q3 to keep their revenue consistent amid ongoing geopolitical tensions and macroeconomic uncertainty.
The NOR flash market will likely remain unstable until manufacturers and distributors have better near-term visibility. If chipmakers or their supply partners suddenly make their merchandise more expensive, buyers could become even more cautious about amassing inventory.
This situation represents an important opportunity for electronics companies that lack institutional financial resources.
Recently, several world-class chipmakers have adjusted their production schedules and product mixes to revive demand. For example, Winbond Electronics is working to increase shipments of the excellent products it makes with its 58nm manufacturing process. Its also moving to expand production using its newly developed 45nm node.
Along similar lines, Macronix, a top provider of automotive, communications, and industrial memory, is providing samples of its 45nm modules. The firm is also seeking to beat its first half sales figures before 2022 ends.
OEMs, CMs, and EMS firms can stock up on best-in-class NOR flash before the holiday season by working with an enterprise electronic components marketplace.
NAND and DRAM Availability Could Worsen in 2H22
Although the overall memory sector is holding its breath, NAND and DRAM product pricing and availability could get much worse soon.
DigiTimes recently revealed that its chip distribution sources predict memory costs will grow as smartphone manufacturers unveil their new products. The market intelligence provider expects Apple and its partners to ramp up purchases of modules in preparation for its traditional autumn iPhone lineup refresh. It also sees higher demand for components that are popular among Android handset manufacturers.
Provided those forecasts are realized in Q3, manufacturers will be incentivized to raise their DRAM and NAND prices. Moreover, an industrywide rush to snap up mobile device chips would make them harder to find on the open market.
So, why is one category of memory becoming more affordable and accessible while another is getting more expensive and less available?
Reuters reported that Shanghai finally ended its two-month COVID-19 lockdown. Regional authorities determined that local infection rates had fallen enough for citizens to work, travel, and shop normally. The South China Morning Post found that the city of 25 million people celebrated the end of the self-quarantine mandate by dancing in the streets and returning to their favorite corner shops and malls.
If Chinese consumers follow the established pattern of engaging in retail therapy following a long coronavirus lockdown, smartphone vendors will enjoy a very merry Christmas this year.
Shortage Struggles Continue - May 11, 2022
Intel recently forecast that the global chip shortage will continue until 2024. And Nintendo and Sony recently cut their video game console sales goals due to worsening global supply chain conditions.
On the bright side, Thor: Love and Thunder looks pretty fun, right?
Intel Believes Chip Shortage Will Last Until 2024
In a recent interview, Intel CEO Pat Gelsinger expressed his belief that the global chip shortage will “drift into 2024.” The executive explained that the electronic components manufacturing equipment bottleneck is the foundation of his new outlook. Last month, Applied Materials, ASML Holdings, Lam Research, and other microelectronics fabrication tool providers informed their customers that delivery times would be around 18 months.
Because of that delay, Gelsinger believes chipmakers and foundries will not be able to expand their capacity as planned. Last summer, the semiconductor industry veteran, as well as several analysts, expected the shortfall would end in 2023.
As of this writing, Intel’s forecast has not been echoed by other semiconductor sector leaders.
In fact, IC Insights recently predicted global silicon wafer capacity would increase by 8.7 percent annually this year. The organization believes ten new fabs will go online in 2022 and raise the worldwide wafer output to its highest level in six years. Moreover, TSMC recently told Nikkei Asia that chipmaking equipment delivery problems had affected its 2023 capacity expansion plans. However, the world’s largest foundry service company stated that its 2022 roadmap has no issues.
TSMC fabricates components for Apple, AMD, Qualcomm, Nvidia, MediaTek, Broadcom, Marvell, and several other leading global electronics brands. Therefore, Intel's shortage prediction is highly credible if it is struggling to outfit its factories with manufacturing tools. Especially considering that…
Sony and Nintendo Cut Video Game Console Production Targets
Sony and Nintendo have recently cut the production targets for their PlayStation 5 and Switch video game consoles despite robust worldwide demand.
Sony CFO Hiroki Totoki recently revealed his corporation expects to sell 18 million ninth-generation systems in the current fiscal year. Last November, the conglomerate declared its goal to move 22.6 million units during the same period. Totoki also disclosed that it only moved 11.5 million consoles in 12 months ending in March 2022, down 17.87 percent from its target. The executive attributed the negative change to China's ongoing manufacturing and logistics issues related to COVID-19.
Sony launched its PlayStation 5 system in November 2020, but supply chain issues have kept it from meeting demand. The console features a custom CPU and graphics components designed by AMD. That high-performance hardware has made the system widely sought after but elusive in the end-market since its launch. The company’s new forecast indicates that the situation will remain unchanged this year.
Nintendo recently made a negative revision to its long-term video game hardware sales forecast.
The corporation expects to move 20 million Switch systems in the current fiscal year, down 10 percent from 2021. Although the firm launched the hybrid console in 2017, it has enjoyed robust popularity throughout its lifecycle. Amid global coronavirus pandemic lockdowns in 2020, gamers pushed it to record annual sales of 28.83 million units. Unfortunately, supply chain interruptions caused worldwide purchases to tumble by 20 percent in 2021, even though demand did not diminish significantly.
Nintendo said China’s COVID flareups and Russia’s invasion of Ukraine had exacerbated its ongoing procurement, production, and shipping challenges.
Since supply chain disruptions are hindering the gaming industry’s most prominent players, conditions are undoubtedly more severe for midsized OEMs, CMs, and EMS providers. Although incremental progress is being made to relieve major component chokepoints, shortages will be in everyday reality throughout 2022.
Accordingly, companies should reinforce their inventories immediately because pricing volatility and availability problems will only worsen as the holiday shopping season gets closer.
COVID Lockdowns Problems – May 4, 20222
Recent citywide COVID-19 quarantines in China have caused serious production and logistics problems for the country's electronic component suppliers. And a recent surge in DDR3 demand might cause new shortage issues for OEMs, CMs, and EMS providers later this year.
China's COVID Lockdowns Disrupting Component Production & Deliveries
Since the beginning of the year, the Chinese government has locked down several major cities amid a spike in COVID-19 infections.
Consequently, corporations with manufacturing facilities in Shanghai, Shenzhen, and other areas have dealt with production shutdowns and logistics hurdles. Though Beijing is actively working to mitigate the problem, many automobile companies and components suppliers are struggling.
DigiTimes reports that recent quarantine mandates have disrupted the area's printed circuit board output.
The publication notes several ODMs have had difficulty securing their PCB orders because of the factory closures. Unimicron Technology and Career Technology had to shutter their Kunshan plants in response to coronavirus-related directives. Other firms in eastern China have avoided output disruptions by adopting "closed-loop" management procedures at their facilities. However, Chinese truckers must submit to lengthy screening when transporting goods from one city to another, which has caused delivery delays.
Along similar lines, AU Optronics anticipated COVID restrictions would curb production at its Kunshan factory by 30 to 40 percent. The affected facility made premium LTPS laptop panels and was getting certified to fabricate automotive parts. But the regional health and safety orders interrupted the site's equipment installations and raw materials shipments.
AU0 expects panel shipments to fall by 1 to 3 percent this quarter while average selling prices will decline by 5 to 10 percent.
Finally, On Semiconductor suspended operations at its Shanghai global distribution center in late April. The manufacturer, which makes automotive ICs, discrete semiconductors, and logic components, reopened the complex a week later, but its operations suffered. It had to tap alternate warehouses in Manila and Singapore to fulfill some shipments and expedite others to maintain its schedule.
Onsemi also encountered operational problems because of lockdowns in Shenzhen, Suzhou, and Leshan.
Although COVID-19 infection rates have fallen in Shanghai, China has experienced new clustered outbreaks in areas like Beijing. As such, it is unlikely that the Chinese government will roll back its pandemic containment strategy in the immediate future.
DDR3 Demand to Exceed Supply in Q3
According to DigiTimes, demand for DDR3 memory modules is on the verge of exceeding the available supply.
The site explained that interest in that low-density DRAM has ramped up recently. Taiwan-based supplier Elite Semiconductor Memory Technology (ESMT) recorded a spike in orders last month, along with an increase in requests for advanced deliveries.
Unfortunately, China's COVID lockdowns have impeded its ability to address its customers' needs due to regional transportation snarls. The firm expects its order volume to ramp up in the remainder of this quarter, provided Beijing eases its pandemic restrictions.
ESMT should manage the upswing in DDR3 purchases well as it held a $183.7 million chip inventory at the end of 2021. It also has contracts with local foundries such as Powerchip Semiconductor Manufacturing (PSMC) and Wuhan Xinxin Semiconductor Manufacturing (XMC).
That said, OEMs, CMs, and EMS companies that keep DDR3 modules on hand as part of their regular inventory might want to stock up soon.
Last month, Samsung declared it would stop taking orders for that niche component category at year's end. The conglomerate is eager to dedicate its production capacity to newer and more lucrative memory products.
The manufacturer's portfolio update and the jump in demand could create a significant shortage in that category. The ongoing unpredictability surrounding China's industrial cores and ground logistics makes that outcome even more likely.
Short-Term Challenges, Long-Term Sufficiency – April 27, 2022
Despite historic efforts to bolster global semiconductor production capacity, some segments like analog chips and microcontrollers still face severe shortages. However, significant capital expenditures and rising market competitiveness are cultivating long-term supply stability in those sectors.
Analog IC Shortage Pushing Lead Times and Pricing
According to industry insiders, the ongoing analog IC shortage is not getting better anytime soon.
On the plus side, IDMs specializing in that component type believe the bottleneck affecting the segment has eased since last year. Moreover, the biggest driver of the parts scarcity – constrained 8-inch (200mm) fab space – is being addressed. Chipmakers are seeking partnerships with foundry service providers with 12-inch (300mm) wafer output capability to make their automotive and industrial parts.
That change, and ambiguity about consumer electronics demand, should bring some stability to the analog IC sector.
In addition, SEMI recently reported that the global 200mm production capacity will rise by 21 percent from 2020 to 2024.
The organization determined that 25 new 8-inch wafer production lines would come online during that timeframe. That means manufacturers can ramp up their output of analog, MOSFETs, display drivers, MCUs, PMICs, and sensors with 5G, IoT, and automotive applications.
Unfortunately, building or expanding chip factories and equipping them with proper machinery and personnel is a slow process. It is also incredibly expensive; DigiTimes estimates foundries and manufacturers will spend $4.9 billion on 200mm equipment this year.
Until the industry catches up with demand, OEMs, CMs, and EMS companies should stockpile mission-critical chips at every opportunity.
MCU Supply Remains Tight Worldwide
Industry watchers recently determined average industrial and automotive MCU lead times now range from 32 weeks to over one year.
Infineon Technologies and STMicroelectronics informed buyers that their microcontroller units would require 52 to 58 weeks for production and delivery. Those providers noted that supplies of their 8-bit, 16-bit, and 32-bit devices are constrained.
Along similar lines, Microchip Technology’s 16-bit devices will arrive at their customers’ receiving bays for 40 to 70 weeks, while its 32-bit components will not be available for 57 to 70 weeks. Moreover, the Chandler, Arizona-based provider does not expect its output schedule to return to normal this year.
NXP Semiconductors told its customers it needs 30 to 50 weeks of turnaround time for its MCUs.
On a brighter note, Renesas Electronics has gotten its automotive MCU lead times down to 30 to 34 weeks. The manufacturer cut its delivery delays by securing additional foundry support from TSMC and outsourcing some backend production work.
In addition, DigiTimes reports that Nuvoton Technology, Holtek Semiconductor, Weltrend Semiconductor, and other Taiwanese suppliers are stepping up their MCU fabrication. The region’s chipmakers aim to meet the demand for 8-bit industrial parts and 32-bit consumer electronics ICs. The publication also notes several companies in mainland China want to break into the automotive MCU segment.
Earlier this month, Nanjing-based SemiDrive Technology launched a new series of vehicle microcontroller units to support next-generation in-cabin safety features. The firm intends to make its high-performance into volume production in Q3 using TSMC’s 22nm node.
GigaDevice Semiconductor, Sine Microelectronics, Chipsea Technology Shenzhen, Hangshun Chip, and Nations Technologies also have plans to into the sector.
All that is to say, the bottleneck affecting the global MCU industry will not be a long-term challenge because so many companies want a slice of the $21.6 billion market. After years of unprecedented volatility, the semiconductor space is moving towards a new stable paradigm. But “the new normal” will not snap into place overnight.
Pricing Volatility Continues – April 20, 2021
Memory Module Prices to Fall in Q2
Industry insiders report spot and contract DRAM and NAND prices will decrease in the second quarter of this year. The reason for the change is complicated but boils down to recent government-mandated coronavirus lockdowns in China.
Widespread disruption follows whenever Beijing orders a temporary halt to manufacturing activity and transportation within a particular area. On March 28, local leaders implemented the country’s “COVID-zero” measures in several industrial hubs, including Shanghai and Shenzhen.
Though state administrators have worked with large providers to resume normal operations, several ODMs with large facilities in the region are still getting back on their feet.
As a result, suppliers across the DRAM and NAND value chain are experiencing soft orders and weak interest. Market watchers anticipate distributors will offload their memory products in Q2, prompting a slight spot price dip. However, contract DRAM costs could climb by around 5 percent due to the fallout from a plant contamination event in February.
In happier news, DigiTimes expects production and logistics conditions in China’s industrial cores to normalize in early May amid Labor Day celebrations.
Samsung to Cease Taking DDR3 Orders by Year’s End
Samsung recently told its customers it would stop taking orders for DDR3 SRAM modules by the end of 2022. The corporation intends to continue shipping 1GB, 2GB, and 4GB memory chips through 2023, but its re-tasking its capacity to fabricate more CMOS sensors. Consequently, OEMs, CMs, and EMS firms using that brand and component type should make large purchases as soon as possible.
It is worth noting that major chipmakers accelerating obsolescence in their catalogs is a widespread trend.
Since the global chip shortage began, semiconductor corporations across the industry have started removing older portions of their portfolios. Leaders believe that dedicating their production capacity to newer and more lucrative parts is the best way forward. With the marketplace being as unstable as it is, that strategy makes a lot of sense from a financial perspective.
Unfortunately, midsize firms can be caught off guard by these shifts if they happen to miss a single crucial product change notice (PCN). For that reason, professional buyers should expand their supply chains to include vendors that make chips essential to their product lineups.
STMicroelectronics to Raise Prices Across the Board
STMicroelectronics informed its distribution partners that it would raise prices across the board in the current quarter.
The chipmaker explained that skyrocketing raw materials costs and geopolitical disruptions had pushed its overhead expenses to new heights. On top of that, the supplier is dealing with sharp increases in logistics and energy fees. Because those developments occurred in the last few months, it cannot absorb the surge in costs alone.
The Singapore-based company noted the pricing would affect new orders and its current backlog. The firm made its portfolio more expensive in Q4 2021 amid strong demand for its microcontroller units and power management circuits. DigiTimes anticipates other European and East Asian IDMs in automotive and industrial segments to follow in STMicro’s footsteps in short order.
No End in Sight – April 13, 2022
Based on recent reports, the global chip shortage will not end anytime soon. Well-sourced industry publications have reported that a variety of electronic components with data center applications will be in short supply for the rest of the year. In addition, supplies of certain NAND flash parts are becoming tighter. But even with those less than energizing developments, CMs, OEMs, and EMS providers still have solid procurement options.
Server Components Supply Limited Through 2022
Though we all deserve a break, shortages of server components like microprocessors will probably continue until the end of the year.
Market-leading ODMs Inventec, Quanta Computer, and Wistron anticipate strong sales of their networking products in the near future. Those firms believe that Intel and AMD’s recent data center CPU launches will drive purchases worldwide as companies refresh their hardware. In fact, they are already feeling the impact of that market trend on other data center components.
Inventec determined it is facing an 8 to 10 percent supply-demand gap for its data center motherboards. DigiTimes founds supplies of PMICs, discrete crystals, MCUs, cabinets, switches, and chassis backplanes are also very tight.
Because it is still 2022, the server component bottleneck does not have a single direct cause. Chenbro Micom, a Taiwanese chassis maker, is struggling to ship orders due to labor, materials, and shipping container shortages. Rising geopolitical tensions in Eastern Europe have increased the price of stainless steel, which is constraining availability across the server supply chain.
Moreover, new clusters of COVID-19 infections in the Chinese mainland have disrupted the production and transportation of data center microelectronics.
NAND Flash Device Controllers Getting More Elusive
Micron Technology and Samsung have tapped Silicon Motion Technology and Phison Electronics to help ramp up their NAND flash controller output. The top providers are responding to spiking demand from the data center providers and other high-end segments. However, supply and foundry support constraints are obstacles for first-class third-party providers.
Phison believes its 55nm flash controllers will be in short supply through next year. Market watchers estimate that the overall product category is currently dealing with a 40 percent shortfall. As a result, suppliers are pushing their older USB and SD 2.0 parts toward end-of-life to make more space for the newer, more lucrative items.
Though that trend makes sense from a business perspective, manufacturers might encounter material sourcing problems sooner than expected.
Along similar lines, Silicon Motion expects its 28nm flash controller availability will not normalize until 2023. The chipmaker is competing with automotive suppliers for foundry space, with automotive suppliers eager to make more OLED DDIs and CMOS image sensors. Despite its current production challenges, it projects 20 to 30 percent year-over-year revenue growth in 2022.
Right now, it seems pricing and availability unpredictability will likely affect this product category for at least a year. Unless something changes, OEMs, CMs, and EMS providers should consider expanding their supply chains to include an electronic components e-commerce marketplace as quickly as possible.
For example, industry-leading chipmakers, even with world-class help, will not be able to stabilize the overall NAND flash controller supply until 2023.But Microchip’s PM8609B1-F3EI32xG3 PCIe NVMe controllers are available factory direct with extraordinarily low lead time. The DDR4-2400 component features 32TB of flash memory capacity with 32 independent NAND channels. Even better, it can perform up to 1 million random reads IOPS on 4KB.
In other words, online marketplaces can help manufacturers source parts from qualified suppliers when no one else can.
March 28, 2022 - Update
Renesas Fabs Return Full Capacity Following Earthquake
The Japanese chipmaker closed its factories after a 7.4 magnitude tremblor hit the coast of the Fukushima prefecture. Three of the affected facilities reopened and returned to normal operations within a few days. However, its Naka-based fab lagged due to “work-in-progress” damage, only hitting 50 percent capacity on March 23.
The firm disclosed that the plant resumed its pre-earthquake cadence last Saturday and that it sustained a supply hit. The disaster ruined two weeks’ worth of 300mm wafers and three weeks’ worth of 200mm units. The manufacturer uses its Naka complex to make nonautomotive microcontroller units (MCUs).
As of this writing, Renesas has not publicly announced any lead time or pricing adjustments related to the tremblor.
SGT MOSFET Foundries Booked Through 2H22
Earlier this month, DigiTimes reported multiple 6-inch wafer foundries based in Taiwan had filled their capacity through the first half of 2022 due to robust demand for split-gate trench (SGT) MOSFETs.
Epsil Technologies, Mosel Vitelic, and Nuvoton Technology, among others, are running their specialty fabs at full utilization at present. The service providers have received a spike in orders from their manufacturing clients in part because of expiring IP rights. Previously, global IDM derived revenue from manufacturers that maintained SGT MOSFETs as part of their portfolios. But those corporations shifted focus to addressing component shortage-related demand for automotive components once their patents ran out.
Consequently, chipmakers pursuing positions in the consumer electronics, server, and vehicle power systems markets had to find new service providers.
Thanks to their deals with Taiwan’s specialty foundries, manufacturers including Advanced Power Electronics, Niko Semiconductor, and Cystech Electronics have stabilized their SGT MOSFET output. But other providers without fabrication contracts may see long lead times for that component type until this summer.
Demand Soft for Large-Size DDIs, But Upward Pricing Pressure Coming Soon
Breaking with current market trends, large-size display driver ICs (DDIs) are facing downward pricing pressure due to weak demand. However, that situation is not going to remain static long-term.
Currently, the semiconductor industry is still experiencing extreme volatility due to the ongoing impact of the chip bottleneck. But certain segments are normalizing as end-market demand has fallen in line with established seasonal buying patterns. In this instance, companies are not stocking up on large-size DDIs because interest in TVs, PCs, and monitors is soft right now.
In fact, outsourced semiconductor assembly and testing (OSAT) and chip-on-film (COF) packaging providers are running their DDI production lines at 70 to 80 percent utilization.
That said, market watchers expect the segment to see some upward pricing pressure in the second half of 2022.
Industry insiders expect two factors to ramp up consumer spending on big televisions later this year. One, several OEMs will introduce new 8K sets powered by robust 7nm SOCs. TVs that can support ultra-high-definition gaming and video content will likely entice buyers. And two, the 2022 FIFA World Cup, starting in late November, is anticipated to drive purchases of 4K and 8K TVs.
Under the circumstances, manufacturers could benefit from reinforcing their DDI inventories soon.
March 21, 2022 - Update
Several Japanese Chipmakers Halt Production Following Earthquake
On March 16, a 7.4 magnitude earthquake struck Northeast Japan, causing two fatalities, over 100 injuries, and leaving thousands of people without water and power. The disaster also significantly disrupted the country’s manufacturers, including several chipmakers.
Renesas closed its Naka, Yonezawa, and Takasaki factories following the tremblor but partially reactivated the three sites on March 17. It reported no casualties or “significant facility damage” and said the Yonezawa plant would resume full production on March 20 while the Naka and Takasaki sites would restart on March 23. The vendor, like its contemporaries, has not disclosed the full impact of the event on its output.
DigiTimes noted the three fabs represent 40 percent of its overall capacity, and none of them produce auto chips.
Murata Manufacturing, a leading capacitor company, idled four factories after the earthquake struck and extinguished a fire at one facility. The firm has already restarted work at its Koriyama and Motomiya fabs and intends to bring its Tome and Sendai plants back to full utilization this week.
Sony paused operations at three domestic production complexes in the wake of the disaster. It plans to gradually resume work at its semiconductor laser, storage media, and image sensor production centers.
Kioxia shuttered its K1 Fab in Kitakami in the aftermath of the quake, pending an inspection. The plant is responsible for 8 percent of the manufacturer’s overall output. TrendForce reports the facility, which it operates with Western Digital, sustained partial wafer input damage. The market intelligence provider expects the affected factory’s production yields will decrease in the first quarter due to tremblor.
Last month, Kioxia’s Kitakami and Yokkaichi sites experienced a contamination incident that significantly reduced its flash memory supply. DigiTimes expects the corporation’s 3D TLC NAND prices to rise by 15 percent and its MLC NAND bit rates by 5 percent soon.
Given the widespread nature of the disaster, other price changes and availability issues are likely coming soon.
Foxconn Partially Resumes Production in Shenzhen
Foxconn recently announced it partially resumed production in Shenzhen, China, under a “closed-loop management process” on March 16. The firm’s solution involves transporting tens of thousands of workers directly between its dormitories and factories and regular COVID-19 testing. Its insulated system had enabled it to restart operations even when the city of 17.5 million remained under lockdown.
The Chinese government introduced new policies to balance its approach to the coronavirus pandemic with regional economic concerns.
Chinese officials first enacted the “COVID zero” protocol to curb new nationwide infection rates shortly after the pandemic began. International health authorities applauded the strategy for strictly limiting illnesses and deaths in-country. However, widespread semiconductor production stoppages in the country’s industrial core played a big role in cultivating the global chip shortage.
Local leaders eventually lifted the lockdowns once the nation’s case numbers plummeted. But quarantine mandates returned earlier this month when the nation’s infection rates reached their highest levels in two years. Last Wednesday, Beijing allowed Foxconn to bring its second-largest manufacturing campus back online to mitigate lockdown-related financial fallout.
The government also lifted lockdowns on multiple areas in the Guangdong province because they reported no new COVID cases for several days. That said, China reported 4,100 new coronavirus infections last Thursday, with 105 coming from Shenzhen.
Consequently, the country’s latest COVID flareup, and its impact on many local chipmakers, is still an unfolding crisis.
DRAM prices to rise in Q2 2022
DRAM will become more expensive later this year due to the ongoing impact of the global chip shortage.
DigiTimes found spot DRAM prices have risen 5 to 7 percent in Q1 2022, while contract rates fell by 7 to 9 percent. However, the publication believes the component type will experience an across-the-board cost jump in the second quarter. It attributes the change to the priorities of the semiconductor industries memory chip manufacturers. At present, the field’s leading vendors are committed to refining their process technology to improve their yields.
But that means top DRAM manufacturers are directing funding away from production capacity expansion, limiting their output. Until the bottleneck within the segment is resolved, prices will probably continue climbing.
March 14, 2022 – Update
Chinese Coronavirus Lockdowns Impacts Multiple Manufacturers
Leaders in Shenzhen, Dongguan, Shanghai, and Changchun, China, initiated strict lockdowns following a surge of coronavirus infections on March 13. Government officials took action as part of Beijing’s “zero-tolerance” approach to clamping down on new outbreaks to halt their expansion. That means nonessential businesses and public transport services in those areas will be suspended until March 20. As a result, several electronics companies with manufacturing sites in the region have paused production.
Foxconn, the world’s largest EMS provider, announced it would halt work at its Guanlan and Longhua factories. The world’s largest iPhone assembler is reassigning the orders tasked to those facilities to other plants to minimize the disruption to its operations. General Interface Solutions (GIS), Foxconn’s touch panel subsidiary, also shuttered its Shenzhen plant in compliance with the mandate.
As of this writing, Apple has not publicly commented on the lockdowns impacting its supply partners.
China’s latest COVID-19 lockdowns are also affecting several PCB manufacturers with production capacity in the country’s Silicon Valley.
Unimicron, an Apple, Intel, and Nvidia supply partner, shuttered its Shenzhen in response to the government order. But it does not expect the plant closure to significantly affect its operations because it only accounts for 3 percent of its revenue.
Avary Holdings, Sunflex Technology, Taiflex Scientific, and Global Brands Manufacture are suspending their local PCB fabs. Similarly, King Core Electronics, a Taiwanese inductor manufacturer, closed its Southeastern China production site. GEM Services, a chip packaging and testing company, closed its Shanghai factory in compliance with the COVID-19 lockdown.
COVID-19 Spike Disrupts MCU and PMIC Supply
Clustered COVID-19 infections also prompted major disruptions in Suzhou, China, which stuck multiple MCU and PMIC vendors.
HeJian Technology (Suzhou), a subsidiary of United Microelectronics Corporation (UMC), shuttered its 8-inch wafer fab from February 14-24 due to an outbreak. The facility, which mainly fabricates MCUs, PMICs, and display driver ICs, closed after a single employee tested positive for the illness. Local authorities allowed the complex to reopen once its entire staff underwent PCR testing.
UMC told DigiTimes the factory suspension had not significantly impacted its business.
In addition, Jinglong Technology, a semiconductor testing provider, and Xpeedic, an IC packaging firm, briefly closed their plants due to the Suzhou coronavirus outbreak. Sino Wealth Electronics revealed that HeJian and Jinglong’s production pauses curtailed its MCU and lithium battery management chip output. Silergy Corp., an analog component designer, also experienced manufacturing delays related to China’s quarantine mandates last month.
In January, Micron and Samsung encountered operational problems because of a COVID-19 lockdown in Xi’an, China.
The latest disruptions highlight the reality of the coronavirus’s impact on the electronics manufacturing supply chain. In recent months, the East Asian superpower has reacted to its highest coronavirus infection rates since 2021 with sweeping lockdowns. Accordingly, OEMs should anticipate component availability and pricing surges through this year.
Automotive MCU Prices to Increase in Q2 2022
The ongoing global chip shortage will substantially drive up prices for specific vehicle components this spring.
According to DigiTimes, Infineon Technologies NXP Semiconductors, Renesas Electronics STMicroelectronics, Texas Instruments, and Toshiba will increase their quotes for automobile-grade MCUs and power chips in the second quarter. It further asserts NXP, Renesas, and Toshiba will make their car microelectronics 10 to 15 percent more expensive. The suppliers are raising their fees in reaction to spikes in copper, gold, and silicon wafer costs.
Raw materials volatility has prompted component availability and pricing searches since the summer of 2021.
Market watchers anticipate the parts bottleneck will use it considerably by the middle of the year. Many top chipmakers and foundry service providers will bring new fabs online by that point. But overwhelming post-coronavirus pandemic demand for consumer electronics means materials costs are unlikely to decrease anytime soon.
WD, Micron NAND Prices Up 10 Percent
DigiTimes reported that Micron Technology and Western Digital (WD) had increased their NAND prices by 10 percent.
Earlier this month, the publication noted the firm would make the change in response to a materials contamination issue in mid-February. The corporation revealed 6.5 exabytes of flash memory had been affected in the manufacturing incident. Market watchers believe Kioxia Holdings would change its pricing because it also lost inventory in the event.
Analysts expected an across-the-board cost jump as those two providers represent 33 percent of the NAND market. But Kioxia, Samsung, and SK Hynix have kept their pricing stable so far. That said, DigiTimes sources indicated NAND availability will be disrupted until Q3 2022. By then, WD and Kioxia should close the output gap that began last month.
TSMC Raising Contract Manufacturing Fees – Again
TSMC, the world’s largest contract manufacturer, will raise its 8-inch wafer fabrication fees by 10 to 20 percent in Q3 2022. The company is also contemplating bumping up the cost of its 12-inch foundry services. It is adjusting its pricing in response to continued robust demand and inflation.
Last fall, TSMC increased its pricing for its 7nm and above nodes by 10 to 20 percent and its sub 7nm services by 3 to 10 percent. At the time, the change represented its most substantial fee adjustment in a decade but made sense in the face of intense customer interest. Three months into 2022, interest in its next-generation and leading-edge production technologies still have not diminished.
At the same time, the company’s capital expenditures have hit record highs in recent years.
In 2021, the foundry poured $30 billion into building new fabs and upgrading its existing production lines. For 2022, it intends to spend between $40 billion and $44 billion optimizing its global manufacturing footprint. And last month, its Board of Directors authorized paying $20.94 billion to enhance its chip fabrication resources further. It is also investing heavily in research to develop advanced 3nm and 2nm mass production nodes.
TSMC informed its shareholders its compound annual growth rate of the next few years should be between 15 and 20 percent. It also anticipates maintaining or exceeding a gross margin of 53 percent for the foreseeable future. But to do that, it will need to charge most of the semiconductor industry’s leading fabless providers more. Consequently, popular mobile devices, PCs, and other consumer electronics will probably become more expensive this year.
March 7, 2022 – Update
Potential Analog Chip Shortage Threatens Industry Recovery
Alix Partners, a global consultancy, pegged the industry’s revenue losses at $210 billion in 2021. However, Nissan, Honda, and Toyota recently made optimistic forecasts for the fiscal year due to the easing of supply constraints. In fact, Bloomberg Intelligence analysts noted that Japan’s top vehicle manufacturers are nearing pre-COVID-19 production levels.
Unfortunately, industry experts now anticipate a new devastating parts shortfall will impact the industry next year.
IHS Markit published a research paper indicating an analog chips bottleneck could emerge. Demand for that part type is increasing in two major sectors: mobile devices and automotive. Smartphone vendors need that category of IC to enable contactless payments, high-end audio, and sensor processing. And car companies require lots of analog microelectronics to support traditional and next-generation automobile functions.
Right now, vehicles include hundreds of analog chips to empower LED lamps, in-cabin displays, and infotainment systems. But they are also essential to newer technologies like automobile electrification and advanced driver assistance systems (ADAS). As those features become pervasive, automakers will greatly ramp up their orders to support their new fleets. IHS Markit anticipates the average car’s analog component content will be 23 percent in 2023 than last year.
Unfortunately, the semiconductor industry cannot accommodate that surge in demand and is not interested in addressing it.
Manufacturers utilize older 300nm to 65nm fabrication processes to make analog chips. However, chipmakers are dedicating 86 percent of their announced capital expenditures to advanced nodes. As a result, market experts believe a major supply shortage could disrupt light vehicle production by the end of 2023.
That said, IHS Markit speculated that demand for analog ICs from other sectors could fall over the next 16 months. If that happens, foundries will have production space available to meet automakers’ needs. In addition, Gartner forecasts that half of the world’s top 10 vehicle manufacturers will design their microelectronics in-house and outsource their production. The organization noted car OEMs, post-chip shortage, want more control over their supply chains.
Ideally, Gartner’s scenario will play out because antiacid providers cannot handle the demand created by another significant chip shortage.
Western Digital Raises NAND Prices
According to DigiTimes, Western Digital Corporation notified its customers of a price increase across its NAND chip lineup. The publication anticipates the change will impact the marketplace this quarter. The California-based corporation is responding to a cost jump it sustained due to a materials contamination at two fabs it operates with Kioxia Holdings. It disclosed that the event reduced its flash memory product output by 6.5 exabytes.
DigiTimes anticipates Western Digital’s markup will drive up NAND prices across the board by Q2 2022.
Analysts suspect the contamination will prompt industrywide disruption because Kioxia also lost 6.5 exabytes of flash memory chips. Because the two companies represent 33 percent of the NAND market, overall Q1 bit shipments could fall by up to 10 percent. Consequently, OEMs might want to stock up before materials prices substantially go up next month.
February 28, 2022 – Update
Lead Times and Components Prices Rose in February
Nikkei Asia recently reported electronic component lead times expanded greatly in February, rising by 5 to 15 weeks from October. The publication found the delivery dates grew significantly among general purpose microelectronics, with 16-bit processors hitting 44 weeks, up 15 weeks from fall 2021. It also determined that power ICs require 37 weeks to fabricate and ship out, an increase of nine weeks.
Chip costs have also trended upward lately, with Gartner noting a 15 percent hike in average selling prices last year.
The microelectronics sector has experienced extreme volatility since late 2020, when a supply-demand imbalance emerged in the automotive industry. Since then, the parts shortfall spread out into multiple sectors and devolved into a global chip shortage. Manufacturers and foundries have snapped into action to increase capacity to resolve the crisis, but state-of-the-art components have been the priority.
McKinsey & Co. determined capacity for cutting-edge ICs, made using 28nm and below nodes, grew 13 percent in 2021. However, capacity for mature products, meaning 40nm and above processes, only grew by 3 percent. That disparity is a big factor in increasing lead times and pricing for general purpose components.
Because of the widespread nature of the shortage, even the largest technology companies are struggling to procure adequate part supplies. Sony, one of the world’s largest consumer electronics companies, stopped taking orders for six of its mirrorless cameras because of the bottleneck. It also paused the manufacturing of its high-end digital photographic devices three times in Q4 2021.
Sony CFO Hiroki Totok stated the company is currently stockpiling semiconductors to prevent similar disruptions in the future. However, with component demand still outstripping production, the company still expects microelectronics to remain in short supply during the year’s first half.
Infineon to Increase Chip Production in 2022
During its most recent quarterly meeting, Infineon Technology revealed plans to increase its chip production this year. The German corporation indicated that demand for its products still outweighs its available supply, so it will expand its capacity both internally and with its manufacturing partners. It also reiterated that it is interested in pursuing automotive, industrial data center, and IoT end-markets opportunities.
The chipmaker earmarked €2.4 billion ($2.68 billion) to the effort and aimed to ramp up its 300mm node capabilities.
Nevertheless, Infineon CEO Reinhard Ploss said supplies of his company’s products would be tight throughout 2022. His comments echo recent statements from Peter Schaefer, head of the firm’s automotive unit, who noted the vendor would be ready to meet demand next year.
Foxconn Sees Supply Chain Bottleneck Easing Up Soon
In more positive news, Foxconn of an upbeat outlook on the global chip shortage.
Spokesman James Wu noted that the corporation sees greater component availability throughout the first quarter and easing “overall supply constraints” in Q2.
Although Foxconn is bullish about the chip supply chain, it still struggles with specific shortfalls. The Taiwanese manufacturer revealed display drivers and PMICs are still difficult to source.
February 21, 2022 - Update
Toshiba to Bolster Power Chip Output in 2022
Toshiba announced it would build a new 300mm wafer fab on the site of Kaga Toshiba Electronics, a subsidiary it maintains in Japan’s Ishikawa Prefecture. The corporation is investing ¥100 billion ($873 million) to establish the facility and another ¥30 billion ($261 million) to set up a 300mm node production line inside one of Kaga Toshiba’s buildings. Its capacity expansion will increase its power component output by 2.5 times.
Last September, Toshiba declared its supply of power management ICs would be tight until September 2022. It explained interest from its automaker, consumer electronics, and industrial equipment customers exceeded its production capabilities. The firm wants to address the demand spike, but it is taking a measured approach to expanding its resources.
The corporation’s 300mm production line will begin operating between October 2022 and March 2023.
Its new fab will be established in two phases, with full operations to commence in March 2025. In addition, the Ishikawa Prefecture plant will feature a quake-resistant structure and dual power lines. Consequently, it will be equipped to handle events like the earthquake that took Toshiba’s Oita complex offline in late January.
MediaTek and Qualcomm to Ramp Down 4G AP Output
DigiTimes reported MediaTek and Qualcomm plan to reduce their 4G application processors (AP) production this year.
MediaTek is allocating its production resources toward 5G chips for smartphones and other mobile devices. However, the firm does not expect its prioritization of fifth-generation networking parts to impact its near-term output. Qualcomm also plans to cut its 4G AP shipments in 2020, but with a more aggressive timeline. The manufacturer intends to cut its deliveries by 10 percent this quarter from Q4 2021.
Industry analysts expect 700 million, or 50 to 60 percent, of handsets made this year will be 5G compatible.
Given how the industry is trending, MediaTek and Qualcomm’s change in priorities makes sense. However, DigiTimes noted overall 4G AP shipments are unlikely to fall this year due to robust demand in regions like Africa, Eastern Europe, Latin America, and Southeast Asia. The publication noted Chinese chipmakers like Unicon (Shanghai) Technologies intend to fill the gap in the marketplace.
That said, handset vendors should plan for mounting supply tightness for 4G hardware made by MediaTek and Qualcomm.
February 14, 2022 - Update
Commerce Department’s Devastating Semiconductor Supply Chain Report
The Commerce Department’s “Results from Semiconductor Supply Chain Request for Information” is an enlightening if dismaying read.
The report determined microelectronics buyers held a median five-day parts stockpile in 2021, down from 40 days’ worth in 2019. It found that median demand among U.S.-based electronics manufacturers exceeded the available supply by 17 percent. Moreover, its respondents believe that the components bottleneck will not be relieved in the first half.
The government’s report also highlighted the specific parts categories most sought after by American OEMs, CMs, and EMS providers. Companies have the greatest need for legacy node MCUs, PMICs, RF chips, image sensors, and optoelectronic parts with automotive, medical, and networking applications.
Industry experts estimate part shortfalls cost the vehicle sector alone $210 billion last year.
The Commerce Department identified the crux of the problem as an underdeveloped electronic components ecosystem.
Its survey cited Semiconductor Industry Association (SIA) data noting that chipmaker fab utilization stood at 90 percent from Q2 2020 to Q4 2021. In addition, its respondents pegged insufficient component assembly, testing, and packaging capacity as a big issue.
Washington’s report concludes that more fabs going online is the solution to the supply-demand imbalance driving the global chip shortage. Unfortunately, component factories take years to build, equip, and staff. For that reason, the semiconductor industry’s top providers expect the parts crunch will extend into 2023.
Plus, the mounting popularity of technologies with high chip content, like 5G and electric vehicles, will increase the need for ICs over time.
The Commerce Department report made it clear Washington wants to answer the microelectronics sector’s calls for recovery and revitalization support. But the way forward is not without its obstacles.
New House Bill Earmarks $52 Billion for Chip Industry
The House of Representatives approved a $350 billion bill called the America COMPETES Act shortly after the release of the “Semiconductor Supply Chain” report. True to its name, the bill aims to make the U.S. a more competitive technology innovation hub. In particular, it sets aside $52 billion to give America’s component development and production resources a major shot in the arm.
Although the United States is a leader in IC design, it only makes 12 percent of the world’s chips. That represents a steep fall from the 37 percent of microelectronics the nation fabricated in 1990.
By providing financial support to the segment, legislators hope to expedite the establishment of new fabs across the country. The SIA estimates manufacturers must pay 30 percent more to launch and operate component factories in the U.S. than in regions like Taiwan. Intel, the world’s foremost IDM, argues that federal funding is crucial to kickstarting local microelectronics production.
However, the America COMPETES Act is unlikely to resolve the global chip shortage soon.
For one thing, the House bill contrasts sharply with a Senate bill, the U.S. Innovation and Competition Act, proposed in the Senate last June. The two initiatives differ in funding allocations, areas of concentration, and trade policy modifications. Those conflicts, and partisan divides in Congress, could delay the passage of new chip sector support initiatives.
Even if the legislation became law right away, the process of establishing more capacity is so time-intensive, Washington’s financial support cannot serve as a magic bullet solution.
Nevertheless, the U.S. government’s push to strengthen its domestic components ecosystem is a positive development. Local manufacturers will gain a more robust and accessible supply chain with more fabs in the region. Overseas companies will enjoy the pricing advantages that come with more competition. And the entire world will benefit from the greater availability of advanced microelectronics.
February 7, 2022 - Update
Industrial MCU Output to Increase in Q2 2022
Last month, DigiTimes reported Holtek Semiconductor, Megawin Technology, Nuvoton Technology, and Nyquest Technology intend to boost microcontroller units (MCUs) throughput in the second quarter.
The four Taiwanese-based providers primarily want to make more 32-bit MCUs with machine tools and industrial system applications. The quartet plans to raise their quotes for those items later this year.
Moreover, their roadmaps include introducing new 32-bit products for servers and wireless chargers to capitalize on robust long-term demand.
The publication also offered good news regarding the output automotive MCUs.
Several leading carmakers had to idle their factories last year due to insufficient supplies of critical components like MCUs. AlixPartners, a global consulting firm, estimated the parts bottleneck cost the auto industry $210 billion in 2021. According to DigiTimes, the sector’s top IDMs want to outsource production to several Taiwanese backend providers to ramp up their output.
As of this writing, chipmakers in neither area have announced any new international partnerships.
SK Hynix to Double NAND Shipments in 2022
SK Hynix, one of the world’s largest memory manufacturers, announced plans to double its NAND chip shipments this year.
The South Korean corporation aims to become the sector’s second-largest flash module provider by utilizing the resources it acquired last year. The firm spent $9 billion to buy the American company’s NAND assets, including its Dalian, China fab. Its SSD division, now rebranded Solidigm, will address robust end-market demand from the server, smartphone, and connected vehicle segments.
The vendor also offered a forecast for the global chip shortage’s impact on its business, predicting a gradual easing of supply chain tightness in 2H22.
Earlier this year, AMD CEO Dr. Lisa Su predicted that IC availability would start returning to normal within the same timeframe.
Samsung and Toshiba Offer Updates on Recently Idled Plants
Samsung and Toshiba recently announced updates on fabs that recently experienced major operational difficulties.
Samsung’s Xi’an, China semiconductor plant began experiencing challenges in late December due to a spike in COVID-19 cases. Beijing locked down the bustling mainland city to halt the spread of illness, including movement restrictions. However, regional officials ended the quarantine on January 24, and the South Korean conglomerate stated its factory had restarted normal operations two days later.
Industry watchers asserted that Samsung’s coronavirus-related disruptions would contribute to higher NAND prices in Q2 2022.
Toshiba temporarily shuttered its Oita, Japan factory following a January 22 earthquake that occurred off the coast of Kyushu. The corporation later declared that the quake had damaged some of the complex’s equipment in the event. It provided an update on February 4 indicating expects to resume full production by mid-March.
Before its unexpected shutdown, Toshiba’s fab made automotive and industrial LSI chips.
At present, neither provider has offered a detailed breakdown of how their respective production interruptions will impact their output. OEMs, CMs, and EMS providers have an incentive to study market analysis generated by trusted providers. That way, professional buyers can make purchasing decisions to ensure their companies will not be left out in the cold.
January 31, 2022 - Update
Electronic Components Shortage Update
On January 22, a 6.6 magnitude earthquake jolted southwestern Japan. The event injured ten people, caused a blackout in the Oita prefecture, and affected operations at two local component factories.
Toshiba suspended work at its Oita plant, which mainly fabricates LSI chips for automobiles and industrial machinery. It declared that the quake damaged some of its production lines but did not affect the complex’s infrastructure. The firm stated the facility would resume production after being thoroughly inspected.
As of this writing, Toshiba has not disclosed how the incident would impact its output.
Renesas acknowledged that the earthquake struck its Oita, Kawashiri, Nishiki, Saijo, and Yamaguchi factories, but did not damage its buildings or equipment.
Across the East China Sea, Hua Hong Semiconductor experienced a brief power outage at its Shanghai-based factory in January. The foundry service provider’s 200mm wafer fab makes IGBTs and CMOS sensors. It plans to gradually bring the complex back online and anticipates no significant impact on its business.
However, DigiTimes explained that 8-inch fab capacity is still tight due to strong demand and limited production space. The news agency noted that some providers based in South Korea have already stopped taking reservations for 2022.
It also pointed out supply constraints led to a 40 percent upswing in 200mm wafer foundry quotes last year. Unfortunately, a similar scenario seems to be unfolding in 2022.
Shifting Component Pricing Trends
In another echo of the recent past, the coronavirus pandemic is driving up costs for essential electronic components.
Late last year, the Chinese government locked down the city of Xi’an amid mounting COVID case numbers. That mandate caused labor and logistics problems at area factories maintained by multiple leading memory chipmakers. Due to the manufacturing disruption, contract and spot NAND and DRAM prices will likely go up in Q2 2022.
On the bright side, Beijing lifted the Xi’an lockdown on January 24, which will allow local factories to resume normal operations. As the semiconductor industry proved incredibly resilient following the COVID-19 outbreak, it should bounce back quickly from this incident.
Shifting gears, industry insiders forecast high-performance processors will become significantly more expensive this year. Last fall, reports emerged TSMC would increase its production fees by up to 20 percent starting in Q1 2022.
Since the firm makes AMD, Intel, and Nvidia products, its price hike will impact forthcoming premium CPU, GPU, and FPGA launches.
The market watchers expect PC demand to erode over the year, but high-end processor costs become more expensive every quarter. On the other hand, TSMC’s bleeding-edge nodes will provide the three American manufacturers with a compelling marketing advantage. Their next-gen processors will enable a level of performance, energy-efficient, and game-changing utility.
But, as always, establishing the future’s infrastructure isn’t cheap.
Finally, DigiTimes recently revealed that handset TDDI (touch/display driver integration) chip prices are trending downward. The component category experienced a decline in value through 2021 as Chinese smartphone sales plummeted. In addition, the part type is losing steam due to the growing popularity of OLED DDIs in mobile devices.
Multiple leading manufacturers in the space are looking to use OLED technology to make new cockpit interfaces through 2023. Consequently, TDDI prices will likely keep sliding this year as the marketplace continues embracing innovation.
As January draws to a close, the global chip shortage has continued to create volatility across different segments. Due to high demand, insiders forecast certain parts will be in short supply until the second half of the year or longer. Industry watchers also found that some OEMs are stockpiling personal computer parts in the face of ongoing instability.
January 24, 2022 -Update
Power Chip Supplies Likely Constrained Until 2023
Earlier this month, DigiTimes reported that multiple Taiwanese-based power management integrated circuit (PMIC) manufacturers are seeing high demand. However, because foundry service provider support remains constrained, the region’s chipmakers do not plan on initiating price hikes in the near term. Instead, firms intend to prioritize making more expensive units with higher profit margins.
That suggests lower-end PMICs could be in short supply throughout 2022, with supplies normalizing sometime next year.
Similarly, the news organization noted server pulse width modulation integrated circuits (PWM ICs) and networking/communications components are tight. Leading American IDMs have informed customers that those items have lead times over six months despite softening demand. Moreover, PWM IC and WLAN vendors have raised prices for those categories.
On the bright side, DigiTimes’ sources indicate additional production capacity for server components will open in 2H22, and shipping should increase by Q2 2022.
Finally, the website noted that several laptop ODMs had built sizeable components inventories, likely due to the chip crunch. For example, Compal Electronics, a supplier for Acer, Apple, and Dell, revealed it had a parts stockpile worth $87.3 million in September 2021v. But during the same time last year, it only had $21.2 million in microelectronics on hand. By amassing a large number of chips, it has met robust notebook demand.
With Compal and other top ODMs fully stocked, chipmakers could adjust their prices or production schedules to avoid creating a market glut.
How the Chip Shortage has Affected ASML
ASML, the world’s only vendor of extreme ultraviolet lithography (EUV) fabrication equipment, has done exceptionally well recently. Last year, the corporation took in over $21 billion in revenue thanks to massive interest in its $170 million machines. Nevertheless, it has grappled with the effects of the global chip shortage.
CEO Peter Winnick said his company engages in a “daily fight” to source enough microelectronics to support its production lines. He further revealed that he regularly contacts semiconductor companies to get more parts for its suppliers. It needs a large number of components to meet its goal of shipping 55 advanced EUV systems in 2022.
But despite its reach and prominence, the chief executive noted demand for its lithography systems currently outstrips its capacity by 30 to 50 percent.
Ironically, ASML’s difficulties indicate a positive trend in the broader semiconductor industry. The corporation’s manufacturing tools are in high demand because so many major providers are expanding their capacity as soon as possible. Its EUV units will enable semiconductor giants like TSMC and Samsung to ramp up their output considerably.
As a result, the Dutch corporation will play an essential role in easing the chip shortage as the year goes on.
January 17, 2022 - Update
Although 2021 is over, the world is still dealing with one of its biggest challenges: the global chip shortage.
Chipmakers, contract foundries, and world governments are building new semiconductor factories to alleviate the bottleneck. Unfortunately, the complex and costly process of establishing new production capacity means that the parts crunch will be an ongoing concern in 2022.
That means certain components will be difficult to source while lead times and prices will continue to fluctuate. But the crisis, which cost the auto industry $210 billion last year, is nearing an inflection point soon.
Susquehanna Financial Group, a global trading firm, found that microelectronics lead times hit 25.8 weeks in December, up six days from November. The organization noted the supply-demand gap across all categories reached its highest level since 2017. It also determined power management integrated circuits (PMICs) and microcontroller units (MCUs) have the longest turnaround schedules.
Similarly, GlobalData, an analytics group, recently forecast the chip shortage will remain an obstacle throughout 2022. It further anticipated that the shortfall would severely impact the automotive, smartphone, and video game console segments. The organization also warned new clustered COVID-19 flareups could disrupt the semiconductor supply chain this year.
In addition, TSMC recently revealed it would spend between $40 billion and $44 billion to expand its production capacity this year. The firm is currently building new fabs in East Asia and the U.S.; some of its capex will be spent on building out its existing facilities. As a result, the foundry can help many of the world’s leading chipmakers stabilize their output.
SEMI, a chip industry association, believes many companies beyond those three foundry service providers are expanding capacity this year. The organization anticipates global spending on semiconductor manufacturing equipment will reach $98 billion in 2022, a 10 percent increase from 2021.
As the year goes on, more and more machinery will be delivered, installed, and come online to help resolve the semiconductor field’s components shortfall.
How the Global Electronic Component Shortage Began
The global chip shortage has more than one cause, but the coronavirus pandemic is its catalyst.
After the COVID-19 outbreak began, multiple world governments initiated regional lockdowns that halted manufacturing across the globe. The production shutdowns occurred in tandem with a plunge in automobile and consumer electronics purchasing. However, demand for electronic devices that facilitated remote work, learning, and recreation spiked as the year wore on.
Amid unprecedented calamity, society adapted by embracing digitalization.
Eventually, interest in new automobiles returned, a situation that caught many OEMs, CMs, and EMS providers by surprise. Because of plummeting business in early 2021, many carmakers had canceled their electronic component orders in fear of a slow recovery. Most automakers carried small microelectronic stockpiles to minimize their overhead, but they could not address the renewed demand.
Auto companies made rush orders for microelectronics to address surging demand but ran into a severe problem. The foundry service providers that made the components that powered their vehicles had shifted to making electronic device parts. As a result, personal transport vendors and suppliers faced higher than regular lead times and manufacturing fees.
Since many auto semiconductor companies started outsourcing production years ago, few could fabricate their own chips.
Simultaneously, a fire broke out at a Japanese auto chip factory, a significant supply chain node, which seriously curtailed its output. Moreover, a severe winter storm prompted the shutdown of several U.S.-based fabs, including some that made vehicle components. The one-two punch of those disruptions worsened the chip shortage.
Russia’s war in Ukraine has also exacerbated the situation by disrupting the world’s supply of several crucial raw materials. Pricing and availability for nickel, palladium, platinum, aluminum, and semiconductor-grade neon gas have been highly volatile since the conflict began in February 2022.
Consequently, the parts crunch affecting the auto and consumer electronics segments expanded into 169 sectors. The semiconductor supply-demand imbalance led to widespread factory shutdowns, product stockouts, and staggering financial losses.
When Will the Electronic Components Shortage End?
Currently, industry watchers have limited visibility regarding the shortage’s conclusion, but 2023 seems to be the consensus.
The component crunch is a long-term problem because its resolution requires the industry to establish more capacity. Chipmakers and foundry service providers can do that by spending millions of dollars to expand their existing facilities or billions to build new ones. Moreover, even when corporations are willing to make massive capital expenditures, the expansion process takes years to complete.
Nevertheless, many semiconductor companies plan to support the world’s recent digitalization by substantially raising their output.
Last year, manufacturers broke ground on 19 mass production fabs and will begin construction on ten more facilities this year.
As those plants go online, formerly constrained parts will become more readily available. Many semiconductor industry leaders expect the new manufacturing capacity to positively impact the supply chain in the second half of 2022. But because demand for microelectronics remains high across the board and a recent shortfall of component manufacturing equipment, the market is unlikely to return to normal until 2024.