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.
My furnace repairman said the same thing about my electric furnace. One replacement of a relay in 27 years. He further stated he had every part in his truck to repair anything in it if needed.
Trump deal? Or maybe wanting to put part of their business a long way from China?
If it’ll run a SSD, go for it. The performance difference will amaze you. Just don’t skimp on capacity.
I just looked, as I had not, for a while, and, chip shortage or no, 480 SSD’s have fallen in some cases to under $50. Holy Carp!
“480 GB SSD’s have fallen in some cases to under $50”, I meant to write...
Thank you!
You are the one spouting nonsense. If you want to make your case, then make your case. Otherwise, you are just farting into the wind.
Too bad you weren’t there to advise Speed Queen.
I worked in the industry for 48 years. There are no such government rules. It is up to you to prove otherwise because it is logically impossible to prove a negative. The onus is on you, and you alone, to prove your assertion or admit that you are wrong. (Hint: you are most definitely wrong.)
Just going by Speed Queen’s statement. Again too bad you weren’t there advise them otherwise.
Please post a link to that statement. I don't see anything of the sort.
As an engineer who worked many years designing sensors and controls for a very wide assortment of devices, I can tell you "how it really is". First, the public relations office of any large company is stuffed with liars and con men. The same goes for the marketing and sales personnel.
What actually happened in the "green surge" is that the Federal government published guidelines for reducing the energy and water needs of washing machines. (Clothes and dishes) Those were not laws or regulations, they were guidelines. I can provide you a link if you desire.
The marketing people, who are always anxious to one-up their competitors, establish their own rules for the design of the next generation of machines. Those rules typically exceed the government guidelines, and they demand specific price points for the finished product. Marketing will also mandate delivery dates that are absurd.
In order to meet the delivery, price, and "green" requirements that marketing set, it was clear that only electronics based controls would work; specifically, a microcontroller. These devices are way superior in every respect to timing motors, cam drums, and relay logic. They turn out to be the only sensible way to make modern controls, particularly in view of the feature creep that characterizes marketing goals.
Now, the price point kicks into gear. That dominates the quality of the semiconductors that are chosen, specifically their temperature and surge tolerance. The quality of the circuit board material is controlled by the price point. The degree of EMF/EMP shielding is governed by the price point. Worse still, planned obsolescence is demanded by the marketing rules.
The government recommended energy and water savings goals. The companies are free to choose if and how they will meet those recommendations. The companies internally govern the quality standards of their products. The government regulates only safety. The engineers design them in a manner to keep their employers happy.
Similar, but more rugged devices are used in washing machines in order to determine water needs or terminating the cycle before the maximum time limit.
It not hard to make them bend. Just use the tool countries have been using for 5,000 years, import duties (tariffs).
Oh, they do things right for the wrong people.
Protectionist tariffs short circuits all of those greedy “Business People” so that the common man can enjoy a litrle of the bounty too. I love tariffs.
Cars are not very susceptible to EMP. They have to be running to be affected and most cars only stall out and simply need to be restarted.
Fixed it.
Hang 'em/
Fixed it,
Not really. All those added together add pennies to the dollar at retail.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.