I've heard the reason that global automakers cancelled chip orders in the early months of the pandemic and then decided to order them anyway a few months later and that caused a backlog.But I also hear that those are 120nm chips.
So why are graphics cards, gaming consoles etc out of stock? Why is Apple attributing fewer iPhones sold to semiconductor shortage?
Can automakers not use a 7nm fab?
How much of the chip shortage can be attributed to AMD and Apple taking the laptop market away from Intel? And if this is true, does this mean that Intel now has unused capacity?
2. If you look at that chart, you will see that the decade previous to the pandemic was the worst ever for durable goods demand. Supply chains had adjusted to that.
3. Supply chains had also all gone to a JIT model to keep inventories lower. This was a huge source of efficiencies, but made them vulnerable to a demand shock.
4. There are new sources of chip demand in EVs.
5. There are new sources of chip demand for very cheap ARM and RISC-V chips. High volume, low margin stuff that has been underinvested for manufacturing, like the entire auto chip chain.
6. 2019 was a down cycle, and companies were idling capacity.
7. When the pandemic hit, companies projected lower demand, and idled more capacity. This put them in a huge hole from which they still have not extricated themselves.
8. COVID outbreaks in Asian factories complicate things
9. Transportation bottlenecks complicate things
1. Yes, everyone cancelled orders and idled capacity. Everyone was anticipating a deep and long recession until the fiscal/monetary bomb of March/April 2020. See #7 above.
2. The 120nm legacy nodes and similar are right at the center of the whole shortage. This has been underinvested for years because it has been low demand growth and low margin. Automakers are particularly vulnerable, because for years, every new feature has gotten its own cheap microcontroller to run it. There are now dozens in new cars.
3. Graphics cards have been affected by crypto miners sucking up supply at any cost, and everyone not named “Apple” competing for TSM’s top end processes.
4. iPhones don't just come with Apple A-Series chips made on TSM’s top-end node, but a host of others, some made on legacy processes where the shortage is. Likely we are talking about some cheap analog power chips or something like that. Apple has decided to push as much supply chain problems to iPad as they can.
5. For the vast majority of what automakers want, 7nm is overkill. Once there are more high end SoCs running multiple systems including self/assisted-driving, that will come into play. But that is not where the shortage is concentrated.
6. Apple was Intel’s 4th biggest customer before they left, so it has had a small impact, but only at TSM at their top node. Samsung has picked up Qualcomm and AMD as a result.
Crazy times in the semi world.
On #1 also bear in mind that the supply chain is deep and complicated. OEM (GM, Toyota, Tesla, Ford etc) orders a number of COMPONENT X that contains a chip from a Tier 1 supplier. Tier 1 supplier order subcomponents from other suppliers. (Continue this until you have built a very confusing interdependent supply web).
At any level of this, anyone could have (and did) cancel their orders in 2020. As in OEMs cancelled some orders, Tier 1 suppliers cancelled some orders, Tier X suppliers cancelled some orders, etc.
> 5. For the vast majority of what automakers want, 7nm is overkill. Once there are more high end SoCs running multiple systems including self/assisted-driving, that will come into play. But that is not where the shortage is concentrated.
There was a discussion about this a few months ago. It's not just that newer nodes are overkill, it's that auto components apparently have very long and expensive validation requirements, which would be another explanation for why they are still depending on these older manufacturing processes.
https://news.ycombinator.com/item?id=28728965
Most of the 8inch wafer supply (mostly >90nm) was no where near capacity before the pandemic and supply restrictions. China did buy up a lot of it (actually moving equipment) and perhaps those were closed down?
Much of the legacy 12inch supply was fairly constrained even before the pandemic (especially specialty 55 and 40nm) due to shifts in display driver needs for OLED. The relatively new 10 & 7nm were pretty well dedicated to known customers.
Much of Automotive is in the larger 180nm to 90nm range with some 28nm for SOC due to cost, reliability, and legacy test qualifications. Except for entertainment only Tesla really uses much smaller than 22nm. It's interesting that they seem to have been willing to use commodity processors much more, and that seems to have made their supply chain more resilient (at the prices they were willing to pay).
It's interesting because a lot of mixed-signal analog really doesn't shrink well 28nm, and requires a lot of redesign to be cheaper than 180nm. There are ways to get down to 14nm and below, but the design costs require huge economies of scale to pay off.
The last couple of years in Semi really has been a game of how much are you willing to pay for the old backlog of parts that were hard to sell earlier. Only now are some new designs really making it out a year later. It's supply chain, but it's also price gouging and just taking profits while you can (why build more when margins will only plummet?). I do worry about the risks of concentration of this production in China.
Source: Spent many weeks fighting supply chain issues and leading redesigns in 2018-2019 due to the beginning of the chip shortage.
I know the shortage is associated with the pandemic because that's when most people started hearing about it, but it was a growing problem even before COVID came along.
I think it's worth emphasizing this - all of the other issues you describe are correct, but what's allowing individual disruptions to turn into a global crisis is a lack of buffering between components of the individual systems. This is a known issue with JIT, and in some ways it's factored into the models - assuming one bad year in ten, 9 very good years can still be more profitable than 10 pretty good years - but it widens the possible set of outcomes and allows for these kinds of cascading failures, which makes it harder for one institution to model or plan around.
https://techwireasia.com/2021/12/malaysian-floods-devastate-...
I think there are also new sources of chip demands in other industries, such as perhaps companies utilizing ML having their own chip designs. But I'm not sure how much that plays into the issue.
1. There was real and relatively sudden increase in demand:
a. COVID-driven in part, all students and many additional employees had to buy computers to study/work from home,
b. a., driven by video, lead to increased demand on Internet & telecom infrastructure.
c. Electric vehicles consume an order of magnitude more chips than ICE cars. EV demand is also skyrocketing.
2. There were fabs (semiconductor factories) shut down due to COVID. This one in Malaysia [0] makes power chips and was particularly problematic for ICE auto makers.
3. The first indication of problems manifested in chip lead times pushing out. As buyers started to see more and more of this, they started increasing orders and soon adopted a hoarding mentality, similar to why many of us couldn't find toilet paper in stores early in the pandemic.
Result: As a personal anecdote, a chip that sells for $0.47 from that fab in Malaysia recently sold for $75 on the broker market.
Note that no, the state of the art fabs cannot be re-outfitted to make legacy chips. The old equipment they were developed on is generally no longer available and the profit from making those inexpensive chips would not justify the capital spend on new equipment.
[0] https://www.reuters.com/article/infineon-results-malaysia/in...
What happened then is that the vendor prioritized larger more expensive parts. They use more silicon per part but the over all profit per wafer is higher. It's not a terrible decision, it's possible to move designs to an over provisioned FPGA but usually not the other way. The lead time for higher end parts started coming down, not to normal, but less than a year. Meanwhile lead-times for the low end parts kept getting longer.
Nobody's going to fabricate semiconductors in their garage. But couldn't someone make a modest profit without first investing $2.0e10, like Intel? Or is it just that the profitability scale is such that if you had an extra $2.0e7 to invest, you're better off buying Intel stock?
Car manufacturers are clearly going to start building huge inventories of them though:
> “Because of a 50-cent chip, we are unable to build a car that sells for $50,000,” said Murat Aksel, head of procurement for Volkswagen Group, during a press briefing in Munich last week. [2]
Ouch. Though honestly, this probably ought to result in some execs being fired... If you sell 100k cars a quarter, imagine telling the board that you saved the interest on $200k and the rent on a small room and that's why you're not selling a vehicle.
[1] https://www.reuters.com/business/autos-transportation/texan-...
[2] https://fortune.com/2021/09/17/chip-makers-carmakers-time-ge...
It should, but it won't because everybody failed the same way.
It was just like the 2008 banking crisis. Lots of people saw it coming, but reasoned "If I predict doom and mistime it, I'm an outlier and get fired. If I simply keep my head down and cash out and it all goes pear-shaped, I'm simply one of the masses and nobody will notice me."
For the next 3 years, fabs will be swimming in profit. After that, I expect a major correction.
Sounds they'll dump it in trash eventually and it'll be a terrible waste of resources
Source? My impression is just the opposite. Batteries and an electric motor is a relatively simple device compared to a gas motor. So you replace a fuel pump (and related sensors), cat converter (and sensors), transmission (and sensors), and a hugely complex (1000s of parts) engine (and sensors). Managing maximum efficiency, torque, and HP across the entire RPM range while minimizing emissions is quite an intensive process. Not to mention the interaction between the engine and the (compute controlled) transmission. Especially these days when the simple rules are gone and managing turbos, heat management, etc means that you might give maximum HP, but only for 5-10 seconds or even idling unneeded cyclinders, stopping the engine at redlights, etc.
Tesla in particular as moves many distributed chips into a highly integrated single board, various people (like Monroe on Youtube) claim the Tesla model3 has a market leading level of integration replacing dozens of distributed CPUs with a custom board/ASIC.
Most semiconductor companies are public companies, with deep pockets and plenty of cash on hand. They invest based on forecast demand.
Interesting. I had assumed that the difference between state of the art fabs and older fabs was that state of the art fabs can make smaller things, and perhaps more geometrically complicated things, but that they don't have to. If they wanted to make a design that only uses bigger things and simpler geometry they could.
Where does this assumption break down?
As those chips run through their life-cycle, their value drops. After 15 years, the price the chips can sell for will drop 90% or more.
If there is a spike in demand at that point, there is no ROI on purchasing brand new equipment.
The demand spike is seen as temporary. Hence, the chip makers are telling the buyers to design out the old chips and upgrade to new. Many companies can do this. But some are constrained by industry regulation (aerospace) or industry practice (semiconductors).
I've mentioned before the irony that companies that make semiconductor equipment are struggling to ship more tools because they can't get enough (of certain chips) to complete building them.
>Where does this assumption break down?
Why would they want to? There is heavy and overbooked demand for the 'smaller and complicated things' that make more money, and add the extra cost of the design to make the 'bigger and smaller' things, and it's a no brainer.
It is quite unlike, say, PCB fabrication, which is way more flexible with regards to layer stack-up.
I vaguely recall a shortage of epoxy resins as well. (For packaging chips, and for printed-circuit boards). It seems like more went wrong than usually does in 2020-21, even leaving aside the pandemic.
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https://twitter.com/wired/status/1335445557788233728
https://twitter.com/BitcoinMagazine/status/14149943888208977...
https://twitter.com/dmgblockchain/status/1438547780646019086
AFAIK, the cost to add significant additional manufacturing capability for most products means that increased demand has to be forecast for a really long time to be worthwhile. Hence why it was still hard to find quality nitrile gloves, isopropyl alcohol, and Clorox wipes during 2020 even though everyone knew there was a bigger market for them for potentially quite awhile. I'm sure the chip and hardware manufacturers don't want to invest millions or billions in assembly line machines and then have buying levels drop back to pre-cryptocurrency-mania levels.
It seems its invisible hand is a bit self-serving, go figure...
Perhaps if the gamers wouldn’t jump to calling any price increase over an MSRP defined in 2019 “gouging”, there would be some incentive to prioritize those parts.
Instead, the fair thing to do is to force everyone to camp on Twitter and wait for the “20 Xbox One X/PS5/GTX#### available at Walmart [update: sold out]” post lottery.
It is amazing to me that manufacturers (to be fair, per gamers’ demands) are giving money away to scalpers, instead of using the revenue from higher prices to buy more manufacturing and shipping capacity.
NVIDIA at least have been trying anti-cryptomining measures in their firmware. A form of defensive innovation, I suppose.
The crypto advocates really do not want to hear it, but their proof-of-waste scheme has big negative externalities for other people.
So whether automakers could use a 7nm fab is a theoretical question -- there is but one 7nm fab, the one at TSMC and they already sold every wafer they can start. They would be able to sell more if they could start more but there are only so many EUV machines ASML can make so there are only so many wafers TSMC can make. All the gaming consoles? yeah, that's 7nm chips. With AMD and Apple moving to the next line, there'll be some capacity freeing up but the demand is still very, very strong.
Also, another effect I do not see here is the container disruption. Read https://www.vox.com/recode/22832884/shipping-containers-amaz...
Putting an STM32 onto N7 would be nuts.
https://www.prosoundnetwork.com/business/akm-factory-fire-sh...
There are other companies that make similar chips, but in much smaller quantities, and they are really in no better position than AKM to fill the void.
A recent "update" : https://evertiq.com/design/51031
This caused a bunch of chips that are old and cheap to be complete unattainable, due to a lack of safety stock across the industry. Cars, power supplies, and other "large" things are highly dependent on these older chips, and have very long redesign timelines.
Newer generation is actually simpler, its just demand growth outstripping supply. I'm sure 2020/2021 also impacted the ability to bring more capacity online but probably only to a small extent, these are long term investments that aren't responsive to instantaneous demand.
However, older chips are difficult to increase capacity for. The tools are not available, and the profit from legacy chips from them is many times insufficient to make the business case for.
Intel offered car manufacturers 16nm chips "as many as they wanted", but they'd have to be re-engineered from, from what I read, 150nm and certified for harsher conditions (temperature, humidity, acceleration, probably noxious fumes if installed under the hood) than consumer electronics, which adds to the cost.
In addition to that, with the upcoming switch to electric cars they probably wouldn't produce enough of them to recoup the investment.
This massive jump in demand has caused backlogs. Covid supply chain issues didn't help.
It would be nice to get to the bottom of these issues I keep hearing about. Yeah, COVID was/is a big thing but when it comes to feet on the ground, what's the impact? Not this much surely.
Not to be conspiratorial but is this a cover story we're being given? Why does it feel like there's suddenly this massive void in productivity?
Yes, this much. I saw someone explain this well enough on reddit, but I can't find a link so I'll try and paraphrase it.
Let's say you're a lumbermill and you run at 100 boards a day in normal times, with enough capacity to do 110 boards a day if you stretch. COVID shut you down for 3 months. You now have a 9000 board deficit from your normal production, with people lined up to buy the boards before you've produced them. Once you get started again, you crank up capacity to 110/day - it takes you 900 days - almost 2.5 years - to recover that original shutdown deficit, without accounting for any of the increased demand for your product.
This is roughly what other industries are experiencing. "Why don't you just make a new factory to increase your production?" well, it would take a long time to do that, would take a lot of capital, the shortages impact you too, and there's no guarantee that once COVID passes, demand won't go back down to 100 boards/day leaving you with a huge unnecessary capacity.
A simple example, of course, but this kind of thing is happening in some form or another in most industries, and will just take some time to work itself out.
First, you had a massive lockdown in China in January 2020, which shut factories temporarily. Then when those factories came back online, the production lines had to be reconfigured so that stations were 2 meters apart. At the same time, a lot of the collaboration that typically happens by people from a company flying out to China to meet with the supplier face-to-face were shifting to video, which frequently met that at least one side of the call was early in the morning or late at night. And as all of that was happening, there were also large shifts in demand as some products saw spikes in orders. That pattern then repeated itself across the world - a company might move production from China to, say, Indonesia, only to see the new factory have to temporarily shut down.
I can imagine that two years of this would create major backlogs and disruptions.
To turn silicon crystals into a PS5 requires multiple steps in the supply chain which, when running smoothly, have multiple steps where people may be planning years in advance.
Sony builds their products out of dozens of components from different suppliers, which themselves may be made out of finished materials provided by other manufacturers, which in turn may be made out of chemicals or raw ingredients from other companies. The dependency tree is quite big, and if any of them are messed up, you can't finish your product.
Normally all of these dependencies are planned well in advance (quarters or years) so that everything is ready when the time comes to ship. Mess it up one level deep, and you're a quarter to a year behind. Mess it up two levels deep and you're two quarters to two years behind.
On top of this, semiconductor production was already stressed to its limits before COVID.
A few months ago there were seventy billion dollars of goods anchored off of LAs docks alone. Some of those were finished goods, but some are intermediate goods.
It's so bad that it's cheaper to make new shipping containers in China than spend the time to return them once they've been used once. We have a glut of practically new containers clogging up our infrastructure.
Even as COVID stopped causing the direct backups, backups propagate all on their own. Like a giant traffic jam and you get to the front and the accident was cleared hours ago.
So, what would you tell your customers, if you can't deliver on time?
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