The chip shortage is likely to get worse before it gets better

News on the morning of June 24, Beijing time. According to reports, in the past few months, a small and small component-the chip, has stumped the entire huge technology industry. After a few months of chip shortage, the impact is not only hard to find game consoles such as Xbox Series X or PS5. The chip shortage has hit the automotive industry the most severely, and even some household appliances have begun to face supply difficulties.

At the beginning of this year, many companies had expected that by this summer, supply chain problems should be resolved and chip products would return to the shelf steadily. However, June is coming to an end, but the alleviation of the chip shortage problem still seems to be nowhere in sight. In consideration of the imminent release of new products from major technology companies and the approaching holiday shopping season, the shortage of chips is expected to only get worse before it improves.

John Deere’s chief technology officer, Jahmy Hindman, said: “About six or seven months ago, we, like most people, thought it was just a relatively short-term problem. But now, I think that in the next 12 to 18 months, the problem of chip shortage will continue to exist."

However, it is not just tractors and trucks that are affected. Intel CEO Pat Gelsinger expressed similar views in an interview in April. He said that it may take two years for chip production to increase: "We still need a longer period of time before we can put more capacity into actual use." In addition, AMD CEO Dr. Su Zifeng was an investor in May. It was mentioned at the event that due to the shortage of chips, the company had to give priority to the production of high-end chips, and low-power chips could only be temporarily shelved.

There are two different influencing factors at work behind this. For some products, the demand is too high, which affects higher-end chips (such as the GPU on the PlayStation 5 or RTX 3080 graphics card). Of course, the shortage of chips has undoubtedly played a role, but a bigger part of the reason is that the market demand for these products is far greater than their supply.

Take the PS5 as an example. It is the best-selling game console in the history of the United States. Even if the product has been on the market for more than a month, the PS5 is still difficult to buy. According to reports, Sony’s Chief Financial Officer Hiroki Totoki said at a private analyst briefing: “Even if we have more equipment next year and produce more PlayStation 5s, our supply will still not be able to meet demand. ."

Let's look at the GPU again. In the past few weeks, GPU prices have finally fallen. It is not because Nvidia has succeeded in producing more GPUs by magic, but after the collapse of Bitcoin prices and the suppression of cryptocurrencies, the market's demand for GPUs has finally slowed down.

However, it is still in the interest of chip manufacturers to continue producing these components: newer generation chips are more profitable. If you are the boss of TSMC or Samsung, continuing to focus on the production (and expansion of production) of these components is undoubtedly consistent with your best interests.

But on the demand side, supply is a big problem, especially the design of old chips. Unlike the new iPhone or Xbox, a Ford truck or John Deere tractor does not use TSMC or Samsung's cutting-edge chips using the 5nm process. They need old chips. Compared with the chips produced by the latest technology, the old chips are not so powerful, but the price is not so expensive.

The impact has already begun to show. A report last month pointed out that automakers have begun to give up advanced features such as navigation systems or additional screens to further ease their chip supply pressure. Nvidia reuses old GPUs for special cryptocurrency mining motherboards, releasing more new generation GPUs for gamers. Even Apple said that due to additional competition, the company encountered some trouble in acquiring old chips. Cook mentioned in Apple's second-quarter earnings conference call: "Most of our problems are to authorize those legacy chips. Not only people in the same industry, but people in other industries are also using these legacy chips."

Revathi Advaithi, CEO of Flextronics, the world's third-largest electronics manufacturing company, raised similar issues in an interview last month. She explained: "Automotive semiconductors are quite outdated." She said that automakers either invest in upgrading to newer technologies to keep them on the same level as consumer devices, or they are foundries to expand production capacity for these special legacy chips, but these legacy Most of the chips are useless for mobile phones or laptops.

To make matters worse, on a broader level, the consolidation trend in the semiconductor industry is intensifying. Although computer chips are becoming more and more important for almost every hardware product in multiple industries, there are fewer and fewer companies producing these chips, especially those dedicated to the high-end market.

According to reports, 92% of the cutting-edge chip supply comes from TSMC, and Samsung provides the remaining chips. The report also claims that TSMC produces about 60% of the chips for global automakers. This means that once the capacity of these chip manufacturing companies runs out, we have almost no way to obtain these core components from other places.

This also explains why the chip shortage is unlikely to affect some large-order equipment, such as Apple's next-generation iPhone or any of Samsung's flagship products in the fall, at least not as severely affected as Ford's cars or GPUs. It has been previously reported that in the coming fall quarter, TSMC has planned to give priority to fulfilling Apple's orders (and automakers' orders). Considering the scale of Apple's orders-imagine how many iPhones Apple sells each year, and each iPhone uses cutting-edge chips from TSMC. Of course, Apple has the right to speak first in the production queue.

The bad news is that the shortage of chips may intensify before the situation improves. TSMC, Intel and Samsung are all investing heavily in the expansion and construction of new fabs. The US government is also trying to help, and plans to provide billions of dollars in funding for the US semiconductor manufacturing industry. But as Intel’s CEO emphasized, it takes time from investment to reaping results, ranging from months to years.

Coupled with the approaching holiday shopping season, and a large wave of new products from various market segments all have demand for chips, more product delays, cutting corners, price increases, and component shortages seem inevitable.