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.
Samsung settles on Taylor, Texas as site for new chip plant
At the manufacturer I work for, a componet that cost 17 cents pre covid now cost $32.00. That id when we can find it.
I try to work my older stuff when I have money to buy stuff and sometimes on hold for powder coating.
At times I wished I wasn’t so much like Adrian Monk in terms of liking clean metal surfaces.
If Trump were in office, I would farm out K5 to a shop and feel reasonably confident that I would have a long term job and there would be a functional economy. For now, ala Johnny Cash, one piece at a time.
Same with the Jeeps.
I need to get a spare module for my Willys jeep.
The old distributor was essentially junk. I converted to the electronic version. A real difference.
maybe I shouldn't loose lip this but anyone who cares would already know, and who will believe me anyway)
You’ve just written the sad truth. I consider myself blessed to have managed to be be born between WWII and the fall of America.
Ha Ha , yeah, my polaris 600 doesnt miss having a carb and points either
“True. But older cars have a mechanical distributor ignition system with points. They will take an EMP licking and keep on ticking …”
I remember setting them well! But where will your gasoline come from? The tanker delivery trucks will be toast.
My thought on EMPs: Our enemies are dependent on us buying stuff from them. An EMP attack would make that impossible. Worldwide very deep depression would be the result. Just like nukes, it’s a mutual suicide move.
After an EMP hit, we’d be back in the 1800s, and millions would die within 6-8mos..
Global Foundries also has major US production in Malta NY and has expanded some recently. It can be done, even in a politically rotten place like NYS.
“assuming the U.S. government can bend the semiconductor market to better meet its will.”
HAHAHAHAHA. Because Chomo Joe has just been so wildly successful creating a great business climate. He did wonders for the oil industry and the XL pipeline. I’m sure he will be just as helpful creating an environment where companies will want to invest billions of dollars to start making chips in the USA. OH YEAH. AND allow the mining of the resources AND allow the energy required to produce chips. AND free to hire the best and brightest instead of the most “diverse” group. AND to minimize federal labor regulations... AND...............
But for possible investment opportunities too.
Like ?
We can thank our globalist traitor pigs for this.
Thanks. I didn’t know it was that dirty to make them.
Sounds like a national security issue that should override enviro-BS to me, but, I’m obviously out of step with this New Age.
My graphics card died. Really bad timing
Nearly all drugs and medical supplies, rare earth elements, steel, building supplies, clothing and shoes, chemicals, the stuff of modern life, come through China. Books are printed in China.
Two hundred and fifty years ago, the British wanted us to be raw materials producers consuming finished products. That meant poverty and dependence.
We are Eloi who like a pretty place with no icky factories and pollution. We are Jacob trading away our birthright.
We are closing down power plants and mandating electric cars. We will take twenty years to build a power plant or factory with all the impact statements, lawsuits, affected groups input, environmental studies, lawsuits in series, minority set asides.
The free traitors on our side had a lot to do with that. It was the GOP that signed the free trades deals that sent our manufacturing, our technology, our money, and our sovereignty to the communists.
Sadly, many capitalism loving, communist hating Freepers supported them. I was even called stupid by one for choosing to pay more for American made products.
Now what do we have? We're borrowing money from China to buy Chinese made goods. Money that could have gone into our infrastructure, military, and space program is funding China's instead.
And who are the geniuses who thought we could send our technology over there and the communists wouldn't steal it?
Our side is every bit at fault as the left. In fact, we're even more at fault because we knew what communism is and should have known better, but we dived in anyway.
>>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.<<
We have the dumbest damn leaders on the planet that they would endanger Americas national security this way. Allowing so much sensitive technology to flow out of our country all the sake of $$$corporate profits$$$.
>>97% of our antibiotics come from China.<<
Along with thousands of other life saving drugs and ingredients used in Rx formulations.
I’ve believe it for decades, this is not your daddy’s capitalism and free markets. This is a perverted sort of globalism designed to weaken over many years the United States.
These leftist, globalist would sell their mama for $$$.
Ah yes, I should have included RINOs in my list of scoundrels and traitors.
If supporting the free trade deals with the communists is the determining factor in whether a Republican is a RINO, that doesn’t leave us with much left.
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