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.
The concept of maximizing stockholder value at the expense of just about everything else is a ruthless, capitalistic practice.
“How’s that flat screen tv workin for ya? Want that black and white 200 lb CRT back?”
We might be better turning off the tv too.
“Back in 1950s, you’d be lucky to get 50k out of a car.”
We can go back to the early 2000s. I had a US car that today would be considered minimal computerization, and got 17 years + 312,000+ miles ... until someone rear-ended me and totaled it.
There was no “black box” on board, etc etc.
Adaption is needed to survive sometimes. There’s a silver lining here. And remember, the overseas guys are worried too - because if they don’t have it, they can’t sell it. Then what? Let them sweat.
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.
Unfortunately, that logic doesn’t apply to suicidal Islamists.
No. There are over 10,000 different types of microprocessors made. It is a shortage of silicon wafers and crystal doping agents. (Rare earth metals) Production lagged, now they can’t catch up due to the heavy demand.
That is a remarkable inaccurate statement for this point in history. Almost everything uses semiconductors.
Except the diodes in the alternator.
Esau not Jacob.
Ping
“Almost everything uses semiconductors.”
It is by government mandate that appliances use semiconductors, not that they need them.
That is just plain silly. Semiconductors are used to provide the feature sets that customers will purchase. Those features provide convenience, economy, and functionality not available any other way.
Nah, I know how to make a lot of cool stuff, including vacuum tubes. All by myself I can put us in the early 1900s; and, there is better talent out there than I.
It is plain silly that the government mandates semiconductors in appliances.
I got one of the last non-semiconductor washing machines made before the government mandates came into law.
There are no government mandates for solid state devices in appliances. If you want to assert this, please post published evidence.
I’ve got a few fairly good Dell towers and maybe a laptop sitting around that collect dust mostly.
They’ve been Linux boxes sometimes.
One was a development server with Win 7 still on it. I keep thinking I will load up some of my old games. Hasn’t happened yet.
I’ve had them on nextdoor some along with flat panel monitors, DBAN wiped and priced cheap, nobody cared.
WInning and coming out NUMBER ONE requires LEADERSHIP.
U.S. is currently sadly lacking in LEADERSHIP.
Department of Energy has been controlling appliance manufacturing since 1988. Code of Federal regulations have been become stricter every year.
Speed Queen was the last cloths washer manufacturer to use non-electronic machines. The company statement said they would no longer be able to manufacture their non-electronic cloths washers after December (of 2019?) in order to meet government mandates. Go look up the CFR’s yourself and see what you can manufacture under their mandates.
American business is too short sighted...
Too much of the outsourcing is a response to government regulations from wage and hour, insurance, environmental, and taxes. Companies determined it was ultimately cheaper to move manufacturing to countries where they could underpay and overwork employees, including children, discharge pollution into waterways the land and the air without a peep from big brother, and operating taxes were minimized. Fifty years of liberalism forced American companies to abandon their home nation.
Maybe that’s why my repairman told me to keep repairing my old machine. He said “you have one of the old good ones, don’t scrap it, keep repairing it.” I am.
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