Posted on 09/06/2021 12:38:01 PM PDT by blam
The great computer chip shortage of 2021 will likely get worse before it gets better. This conclusion was reached following brief study and anecdotal review.
Moreover, while COVID lockdowns may have initially triggered the shortage, several decades of shortsighted decisions and simmering geopolitical tensions make it much more than a matter of fixing a few broken links in the supply chain. Here’s why…
The world’s top two leading chip companies are Taiwan’s TSMC and South Korea’s Samsung Electronics. These two Asian firms, combined, control more than 70 percent of the semiconductor manufacturing market.
The U.S., which was once a leader, lags behind in chip manufacturing after major – and shortsighted – shifts in the business models in the semiconductor industry over the last 15 years. But this could change…assuming the U.S. government can bend the semiconductor market to better meet its will.
The global semiconductor shortage and geopolitical tensions with China have now prompted Washington scrutiny of the supply chain. Suddenly, the U.S. government doesn’t like how semiconductor manufacturing is concentrated in the hands of a small number of Asian companies. There is now a push to bring manufacturing back to American soil.
The U.S. government has earmarked billions of dollars and is reportedly looking at strategic alliances with other nations. The U.S. government, however, has a terrible track record for economic intervention. Typically, its approach involves throwing gobs of fake money at a problem and hoping it goes away. Such an approach is destine for failure.
The key to understanding the geopolitics of semiconductors, which countries dominate and why the U.S. is trying to boost its domestic industry, is understanding the supply chain and business models. Companies like Intel are integrated device manufacturers (IDMs). This means they design and manufacture their own chips.
Most other U.S. based semiconductor companies are considered fabless – they design chips but outsource manufacturing to foundries. Namely, they outsource chip manufacturing to TSMC in Taiwan and Samsung Electronics in South Korea.
Supply Chain Complexity
Over the last 15 years, U.S. and European companies shifted to this fabless model. TSMC and Samsung took advantage and invested heavily in leading-edge manufacturing technology. Thus, if a company like Apple wants to get the latest chip for their iPhone produced, they have to turn to TSMC to do it.
TSMC has 55 percent foundry market share and Samsung has 18 percent, according to data from Trendforce. Taiwan and South Korea collectively have 81 percent of the global market in foundries. They essentially dominate the market. Nearly the whole of technological production is reliant on these two countries, and primarily on two companies… TSMC and Samsung.
Bank of America recently summed up the remarkable shift that has occurred:
“In 2001, 30 companies manufactured at the leading edge however as semi manufacturing grew in cost and difficulty, this number has fallen to just 3 firms.”
These three firms are TSMC, Samsung, and Intel. However, Intel’s manufacturing process has also fallen behind that of TSMC and Samsung. Neil Campling, head of technology at Mirabaud Securities, clarifies how this happened:
“Taiwan and South Korea have become leaders in wafer fabrication which requires massive capital investment; and part of their success over the last 20 years is due to supportive government policies and access to skilled labour forces.”
Yet the supply chain is even more complex.
While TSMC and Samsung are the dominant manufacturers of semiconductors, they still rely heavily on equipment and machinery from the U.S., Europe and Japan. The companies that make the tools required by foundries are known as semiconductor capital equipment vendors or “semicap” for short.
The top five semicap equipment vendors make up nearly 70 percent of the market. Three of the five are U.S. companies, one is European and one is Japanese.
However, Netherlands-based ASML is the only company in the world that can make extreme ultraviolet (EUV), which is required to make the most advanced chips, including those manufactured by TSMC and Samsung.
The Great Computer Chip Shortage of 2021 is Just Heating Up
Part of U.S. policy involves forming alliances. In April, the Nikkei reported that the U.S. and Japan will cooperate on supply chains for critical components like semiconductors. The two sides will work towards a system where production is not concentrated in specific regions like Taiwan.
The U.S. is also working to limit China’s influence on semiconductor development. China has invested in its semiconductor industry over the last several years. For example, SMIC is China’s largest foundry, and a competitor to TSMC and Samsung. But even with these large investments, SMIC’s technology is several years behind that of its Taiwan and South Korean rivals.
U.S. sanctions and actions are looking to further hold China back. Last year, Washington put SMIC on a blacklist known as the Entity List. That restricts American companies from exporting certain technology to SMIC. Roughly 80 percent or more of SMIC equipment comes from U.S. vendors.
The U.S. government also recently pressured the Netherlands government to stop the sale of an ASML machine to SMIC. The machine is needed to make the most cutting-edge chips. That machine has still not been shipped to China. Without equipment from the U.S. or its allies, it’s impossible for China to manufacture leading edge chips.
China, however, may have another option. If the country can’t attain the technology needed to make the most advanced chips through economic means, the promise of force has recently become much more attractive.
This week Taiwan’s Ministry of National Defense delivered its annual report to lawmakers. The report warned that China could “paralyze” Taiwan’s air and sea defenses and counter attack systems with “soft and hard electronic attacks.” And as ZeroHedge noted:
“With the probabilities [of an invasion] increasing, China could attempt to seize Taiwan by force amid America’s disorganized exit from Afghanistan, which has tarnished U.S. prestige.”
If such an invasion were successful, Communist China would have de facto control of TSMC.
In the interim, as the Wall Street Journal reports, the production of computer chips may be delayed because there are not enough ceramic bits. Modern electronics, like smartphones, include thousands of tiny bits of ceramic to control the flow of electricity. Electronic vehicles include over 10,000 ceramic bits.
They are called multilayer ceramic capacitors (MLCCs) and, like semiconductors, their fabrication is concentrated in just a few Asian companies…and COVID related factory shutdowns could delay their production.
Murata Manufacturing, which accounts for 40 percent of the global market, closed a major MLCC factory in Fukui Japan for the final week of August because of a COVID outbreak. Taiyo Yuden, another major bit maker, suspended some of its operations at its Malaysia factory because of employee infections.
We suppose the ceramic bit shortage will work itself out in good time. But, nonetheless, the great computer chip shortage of 2021 is just heating up. This is a story worth keeping an eye on. Not only for its economic and geopolitical implications. But for possible investment opportunities too.
And refrigerators!
Looks like my strategy to drive old chipless vehicles (1957 Bel Air, 1967 Camaro and 1948 Chevy pickup) is about to bear fruit.
Excellent input.
I have a 2017 and a 1993 truck. I drive the 1993 every day...it has 257,000 miles on it.
Depending on how you define better, of course.
Back in 1950s, you’d be lucky to get 50k out of a car. Today 200k is not uncommon. How’s that flat screen tv workin for ya? Want that black and white 200 lb CRT back?
So, the USA used to make a lot of computer chips.
What’s stopping the USA from making them now?
We are in such deep trouble!!
I am stocking up on vitamins and minerals.
Wonder if I should buy a new computer now or wait until next year. Nothing fancy just need it for spreadsheets and some simple online reading, emailing.
"Technology is dominated by two types of people: those who understand what they do not manage, and those who manage what they do not understand." ~ Putt's Law
Hmmmmm.....I wonder if they are stocking up on computer chips for another use? (See Revelation chapter 13)
And we just made a gift of the only accessible deposit of rare earths outside of China to China. The other one is in Greenland and are about to turn our backs on the major chip supplier, Taiwan, to let China overrun it. Soon China will be in a position to cut off our tech development and popular access to electronics and the Democrats will have given it all to China.
And we just made a gift of the only accessible deposit of rare earths outside of China to China. The other one is in Greenland and are about to turn our backs on the major chip supplier, Taiwan, to let China overrun it. Soon China will be in a position to cut off our tech development and popular access to electronics and the Democrats will have given it all to China.
Tesla's still able to build and sell cars, Apple's got its supply chain nailed down, meanwhile the other domestic auto manufacturers are having trouble delivering product, and LG dropped its phone line last year.
Make woke chips! Make woke chips!
Guess I won't be buying for a while.
I agree!
Trump won.
The election was stolen.
Republicans helped Democrats steal it.
TSMC is building a $12B factory in Arizona and plans to build more factories there. The first one should be in operation by 2024.
“ We were going to sell my Lexus Sedan, but I think we should keep it. We have 3 adult kids. I’m thinking between the 5 of us, one of our cars will have a problem and it might be good just to keep our Lexus.”
Before I bought an electric Mustang SUV we had, and still have, 3 gasoline cars. My wife thought I was nuts to have 4 cars, though there were real tax and economic reasons to add the electric one and keep the other, mostly high mileage vehicles.
2 adult kids were borrowing a car each as one of theirs was in the shop and when one of ours required service we were down to one.
She doesn’t think I’m quite as nuts anymore.
I don’t believe any of this
for reasons unknown.
car companies don’t want to be
in the car business
3.2.1. Trump’s fault!
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