A technology executive raised eyebrows last week when he predicted the shortage in semiconductor chips could last into 2023.
“Right now, every single end market for semiconductors is up simultaneously,” Marvell CEO Matt Murphy said at a CNBC Technology Executive Council event Thursday.
“I’ve been in this industry 27 years; I’ve never seen that happen,” he continued. “If it stays business as usual, and everything’s up and to the right, this is going to be a very painful period, including in 2022, for the duration of the year.”
Murphy’s prediction, though, is more pessimistic than others watching the chip market.
“We have an inventory index for the silicon supply chain,” observed Gartner Vice President for Semiconductors and Electronics Gaurav Gupta.
“Right now, we’re in the moderate shortage zone,” he told TechNewsWorld. “We expect to be in the normal zone between the second and third quarter of next year.”
“However,” he continued, “there would still be some devices that are only fabricated on eight-inch wafers. The chip tightness for them could continue to the end of 2022.”
Gupta explained that because eight-inch wafers are an older technology and chip makers are investing in a newer 12-inch technology, no new capacity is being created for eight-inch wafers, which can prolong the shortage for devices wedded to that format.
“Chipmakers are migrating some of the devices to the larger, 12-inch wafers, but not all devices can be migrated,” he said. “For those that can be migrated, the shortage will ease up.”
Jack E. Gold, founder and principal analyst with J.Gold Associates, an IT advisory company in Northborough, Mass., believes that no one knows for certain when the chip shortage will end.
“It’s not just one shortage. It’s multiple markets with multiple needs,” he told TechNewsWorld.
“My best guess — and it’s only a guess — is that most of it will be over in six to 12 months,” he said.
“It’s hard to be for sure, and it’s going to depend on the market you’re in,” he added.
Don’t Fix What Works
In the auto market, for example, the chips have a longer shelf life — five, six, seven years or more, Gold explained.
“What that means is they’re running on old production lines,” Gold said. “Chip makers will keep the old lines running, but they’re not going to invest in lines producing $2 chips. Their new investments are going into lines that can produce $200 chips. So there isn’t much new capacity for the old chips.”
“Automakers don’t want to redesign their chips for the new processors because the old ones are proven and safe,” he continued. “They work, so why upgrade?”
Building capacity for the new chips is a lengthy process. A fabrication facility takes two to three years to build. “While the chip makers are doing everything they can to increase capacity, it takes time,” he said.
“The supply chain was already tight when the virus hit, and it’s not easy to increase capacity,” he added. “It’s not McDonald’s, where you can go out and hire three more teenagers.”
According to AMD CEO Lisa Su, speaking on Sept. 27 at the Code Conference in Beverly Hills, Calif., new capacity by chip makers should start coming online in the fourth quarter of 2022.
In the meantime, though, recovery may be hampered by chip hoarding.
“Companies are realizing that supply chain issues could cause problems, and so many companies shifted more from the just-in-time method of manufacturing to building up a lot of inventory,” said IDC Research Director Phil Solis.
“Everyone started ordering more chips than they needed, which is a big part of the problem,” he told TechNewsWorld.
He added that chip shortages in the future might be avoided if chip makers kept more inventory on hand, even if it cost them a bit more to do so and to diversify their suppliers more.
Of course, Covid remains the wild card in any recovery scenario. “If there’s a resurgence of Covid again in any part of the supply chain’s geography, it could disrupt the supply chain again,” Gupta noted.
Heavy Demand, No Supply
One sector seriously hit by the chip shortage was the automotive industry.
“Demand actually seems to be fantastic, but a global semiconductor shortage — brought on by an increase in consumer electronics demand as well as automakers not anticipating demand recovering so soon, in our view — is wreaking havoc on 2021’s auto recovery,” Morningstar analyst David Whiston wrote in an article published on the company’s website.
“The demand for autos is there, but not the supply,” he added.
He expects the second quarter of 2021 to have been the worst of the chip shortage, but noted that recovery will take time, probably into at least 2022.
“There’s also been some good news upstream in the semiconductor supply chain,” he continued. “Taiwan Semiconductor Manufacturing Co.’s CEO, C.C. Wei, said in April that he expects the semiconductor shortage for the company’s automotive customers, which are chipmakers such as NXP and Texas Instruments, to be greatly reduced by the third quarter.”
One lesson the auto industry may have learned from the shortage is that it doesn’t have the power over electronics suppliers that it holds over other providers in its supply chain, maintained Stephen Oliver, vice president for corporate marketing and investor relations at Navitas Semiconductor.
“When the automakers are buying an engine or a brake system, they have a lot of power over saying yes or no to parts coming in,” he told TechNewsWorld. “But when it comes to silicon chips, they’re up against people like Apple, Lenovo, and Dell, which have more power in the market.”
Life After the Shortage
Oliver’s company doesn’t use silicon for its semiconductors. It uses gallium nitride. The chips are used for power conversion in electronic devices. However, GaN ICs depend on silicon controllers to function.
“We’ve had customers come to us because they can’t get silicon power conversion chips,” Oliver explained.
However, the communication between a device and the power source is controlled by a silicon chip, which is in short supply. “So while we’re happily shipping product to charger makers, some of our customers are struggling to get the USB control-loop chip,” he said.
“So it’s a two-edged sword,” he observed. “We’re being asked to supply chips to people who can’t get the silicon power devices, but because of the shortage of silicon digital processors, there’s a hiccup in our market.”
What will life after the chip shortage look like?
“There are a lot of announcements of capacity expansions. If all the new fabs come online, we’re looking at overcapacity — especially in more mature devices, 20nm and above — toward the end of 2023, early 2024,” Gupta predicted.
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