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.
What a mess.
Also, 97% of our antibiotics come from China.
To what end have our Woke industry leaders brought us?
Our Country desperately needs a new form of capitalistic activism. And every #ing Woke CEO should be kicked to the curb.
Let’s see
Cars worked better before a computer chips
Ovens worked better before computer chips
Pretty much everything can run without computer chips
had to wear a mask the whole time after the globalist pandemic extortion racket started.
the place is bizarre like a soyent green factory, why would the need a factory that is larger than most small cities I'd ask myself .... then it became clear, microchips mean monitoring and absolute control, with enough microchips and programming humans to be obedient and wear masks they could definitly defund the police
C’mon man. We need a way to track your a$$.
America (treasonous politicians) sold out to Chicoms. Rather disgusting. America can’t seem to do anything right anymore.
I just read the other day that GM is not going to produce most of its best selling trucks, because of the computer chip shortage. Trump tried to convince chip companies to bring their manufacturing back to the U.S., but he had to deal with too many RINOs, fabricated issues, and Dimmocommies throwing roadblocks in his way. Let’s see how much we all appreciate what the Dimmocommies have wrought when we can’t buy new appliances, cars, computers, etc. Anyone who voted for other than Trump, I hold you responsible for the horrible mess you brought upon us all. Voting is a heck of a lot more involved than pulling familiar levers without a whit of thought or research.
Don’t neglect maintenance on older vehicles right now.
All part of the plan.
Well, the guy that was in the White House this time last year had been trying to do things about this and other deficiencies in the supply chain and manufacturing processes.
But you know, lots of government hacks and corrupt POSs in state governments did as they were told or paid to do and helped in getting rid of him.
Hope all the liberal hipsters won’t get mad when they can’t get new MacBooks.
No mean tweets.
One shortage we DON’T have is a shortage of corrupt politicians.
As the founders aged out, the MBAs latched on like lampreys. They started liquidating and exporting our tech overseas. Today so called "Business People" know nothing about the technology, and only focus on spreadsheets and "market conditions". They are globalists playing their slots.
Not going to get any better, and not just for chips. A few weeks ago the Biden administration talked lithium battery production in the U.S., particularly in relation to electric cars.
In a move to appease environmentalists, Biden spokesmen said the administration was opposed to mining lithium in the U.S. and instead intended to import lithium from other countries. This is just going to make the U.S. dependent on foreign countries for lithium, and as we see with computer chips, it will be a recipe for disaster.
A coordinated takeover of Taiwan by China and a takeover of SK by NK would certainly accelerate the SHTF meter.
We had a hard time buying a new SUV to tow our new RV, but we found one.
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.
There have been articles about used car prices increasing due to chip shortages. My neighbor just traded in his motor home. A year ago it had a value of $35,000. Today’s trade-in value for his motor home was $70,000.
That’s for sure.
Folks, semiconductors are great BUT they don’t work without electricity. An EMP would not only crash our electric grid, it would fry virtually every semiconductor.
It's not woke, it's stock prices. U.S. industries will offshore anything and everything if it means paying a few bucks less.
I said this a year ago. This ain’t rocket science, but you can’t fix stupid.
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