Semiconductor executive Tom Caulfield
told The Washington Post he knew a crisis was brewing when he started getting
frantic calls from big automakers just before Christmas.
“Tom, you’re killing me. You need to
make more,” Caulfield, the chief executive of chipmaker GlobalFoundries,
recalls the auto executives saying. “Ford, Volkswagen, BMW, Daimler-Benz, Fiat
Chrysler, GM — every one of them became my new best friends.”
The shortage has forced many automakers
to slash production, threatening jobs at the auto companies and their
suppliers. The shortage is predicted to remain in coming months as demand
remains higher than ever. (Read more on our previous article: Computer Chip Shortage Is Slamming
Global Automakers)
Liesa Johannssen-Koppitz/Bloomberg News
One of the main factors leading to a
global shortfall is the pandemic, which causes people to purchase more home
electronics devices to study or work from home. Home entertainment gadget and
smart home product sales are increasing as well. However, new semiconductor
factories are among the most complex manufacturing facilities to build. It costs
billions of dollars and takes years to construct. Hence, it is unlikely to meet
the demand in the short term by simply building more factories.
But why automakers being hit the most?
The roots of the shortage lie in the
early weeks of the pandemic, when auto plants worldwide abruptly shut down amid
widespread stay-at-home orders. Auto sales fell by almost half between February
and April last year. As a result, car companies and their parts suppliers
drastically cut their semiconductor purchases. They underestimated how quickly
the sales would rebound. And when they intend to place their orders again late
last year, they found it difficult as chipmakers are stretched to the max
supplying smartphone giants like Apple Inc.
“It comes down to capacity,” said Shawn
DuBravac, chief economist of IPC, an electronics industry association.
“Semiconductor manufacturers weren’t getting orders from auto manufacturers.
They were getting orders from other industries, so they started to reallocate
production.”
Other factors include stockpiling. PC
makers began warning about tight supply of semiconductors early in 2020. Then
by mid-year, Huawei Technologies Co. - a major smartphone and networking gear
maker - began hoarding components to ensure its survival from U.S. sanctions
that threatened to cut it off from its primary suppliers of chips. Other
Chinese companies followed suit, and the country’s imports of chips climbed to
almost $380 billion in 2020 -- making up almost a fifth of the country’s
overall imports for the year.
What’s next?
Taiwan sees significant potential for
broader engagement over the medium-to-longer term to enhance supply chain
resilience. A TSMC spokeswoman pointed to the company’s Jan. 28 statement that
called addressing the auto chip shortage “our top priority.” While their
capacity is fully utilized with demand from every sector, TSMC is allocating
their wafer capacity to support the worldwide automotive industry.
There are rumours saying that TSMC is
planning to open six new manufacturing plants in the U.S., but it takes time. The
shortage could last for a while since the demand probably won’t slow down,
especially as economic activity picks up again through 2021.
The
shortage is a signal to the U.S. that the country may be over relying on
Chinese and Taiwanese manufacturers. The government perhaps should subsidize a
stronger homegrown chip industry to boost production for their own benefit.
Reference:
1.
Jeanne
Whalen, Reed Albergotti and David J. Lynch, Biden can’t fix the chip shortage
any time soon. Here’s why. 2 March 2021, The Washington Post
2.
Debby
Wu, Sohee Kim, and Ian King, Why the World Is Short of Computer Chips, and Why
It Matters, 18 Feb 2021, Bloomberg
3.
Gerrit
De Vynck, What you need to know about the global chip shortage, 2 March 2021,
The Washington Post
4.
Anton
Shilov, TSMC Rumored to Increase Capacity of Arizona Fab, 4 March 2021, https://www.tomshardware.com/
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