Technology

Why shortages of a $1 chip sparked crisis in the global economy

To perceive why the $450 billion semiconductor business has lurched into crisis, a useful place to begin is a one-dollar half referred to as a show driver.

Hundreds of totally different varieties of chips make up the global silicon business, with the flashiest ones from Qualcomm and Intel going for $100 apiece to greater than $1,000. Those run highly effective computer systems or the shiny smartphone in your pocket. A show driver chip is mundane in contrast: Its sole objective is to convey primary directions for illuminating the display screen in your telephone, monitor or navigation system.


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The bother for the chip business — and more and more corporations past tech, like automakers — is that there aren’t sufficient show drivers to go round. Firms that make them can’t sustain with surging demand so costs are spiking. That’s contributing to quick provides and growing prices for liquid crystal show panels, important elements for making televisions and laptops, in addition to vehicles, airplanes and high-end fridges.

“It’s not like you can just make do. If you have everything else, but you don’t have a display driver, then you can’t build your product,” says Stacy Rasgon, who covers the semiconductor business for Sanford C Bernstein.

Now the crunch in a handful of such seemingly insignificant components — energy administration chips are additionally in quick provide, for instance — is cascading by the global economy. Automakers like Ford Motor Co. Nissan Motor Co. and Volkswagen have already scaled again manufacturing, resulting in estimates for greater than $60 billion in lost income for the business this year.

The state of affairs is more likely to worsen earlier than it will get higher. A uncommon winter storm in Texas knocked out swaths of US manufacturing. A hearth at a key Japan manufacturing unit will shut the facility for a month. Samsung Electronics Co. warned of a “serious imbalance” in the business, whereas Taiwan Semiconductor Manufacturing Co. mentioned it may possibly’t sustain with demand regardless of working factories at greater than 100% of capability.

“I have never seen anything like this in the past 20 years since our company’s founding,” mentioned Jordan Wu, co-founder and chief government officer of Himax Technologies Co., a main provider of show drivers. “Every application is short of chips.”

The chip crunch was born out of an comprehensible miscalculation as the coronavirus pandemic hit final year. When Covid-19 started spreading from China to the relaxation of the world, many corporations anticipated folks would reduce as occasions received powerful.

“I slashed all my projections. I was using the financial crisis as the model,” says Rasgon. “But demand was just really resilient.”

People caught at house began shopping for expertise — after which stored shopping for. They bought higher computer systems and larger shows so they may work remotely. They received their youngsters new laptops for distance studying. They scooped up 4K televisions, recreation consoles, milk frothers, air fryers and immersion blenders to make life below quarantine extra palatable. The pandemic changed into an prolonged Black Friday onlinepalooza.

Automakers had been blindsided. They shut factories throughout the lockdown whereas demand crashed as a result of nobody might get to showrooms. They advised suppliers to cease delivery elements, together with the chips which are more and more important for vehicles.

Then late final year, demand started to select up. People needed to get out and so they didn’t wish to use public transportation. Automakers reopened factories and went hat in hand to chipmakers like TSMC and Samsung. Their response? Back of the line. They couldn’t make chips quick sufficient for his or her still-loyal clients.

Himax’s Jordan Wu is in the center of the tech business’s tempest. On a current March morning, the bespectacled 61-year-old agreed to satisfy at his Taipei office to debate the shortages and why they’re so difficult to resolve. He was keen sufficient to speak that interview was scheduled for the identical morning Bloomberg News requested it, with two of his employees becoming a member of in individual and one other two dialing in by telephone. He wore a masks all through the interview, talking rigorously and articulately.

Wu based Himax in 2001 together with his brother Biing-seng, now the company’s chairman. They began out making driver ICs (for built-in circuits), as they’re identified in the business, for pocket book computer systems and screens. They went public in 2006 and grew with the computer business, increasing into smartphones, tablets and contact screens. Their chips are actually used in scores of merchandise, from telephones and televisions to vehicles.

Wu defined that he can’t make extra show drivers by pushing his workforce more durable. Himax designs show drivers after which has them manufactured at a foundry like TSMC or United Microelectronics Corp. His chips are made on what’s artfully referred to as “mature node” expertise, gear at the very least a couple generations behind the cutting-edge processes. These machines etch traces in silicon at a width of 16 nanometers or extra, in contrast with 5 nanometers for high-end chips.​

​The bottleneck is that these mature chip-making traces are working flat out. Wu says the pandemic drove such sturdy demand that manufacturing companions can’t make sufficient show drivers for all the panels that go into computer systems, televisions and recreation consoles — plus all the new merchandise that corporations are placing screens into, like fridges, good thermometers and car-entertainment methods.

There’s been a specific squeeze in driver ICs for automotive methods as a result of they’re normally made on 8-inch silicon wafers, quite than extra superior 12-inch wafers. Sumco Corp., one of the main wafer producers, reported manufacturing capability for 8-inch gear traces was about 5,000 wafers a month in 2020 — lower than it was in 2017.

No one is constructing extra mature-node manufacturing traces as a result of it doesn’t make financial sense. The present traces are totally depreciated and fine-tuned for nearly good yields, which means primary show drivers may be made for lower than a greenback and extra superior variations for not far more. Buying new gear and beginning off at decrease yields would imply a lot increased bills.

“Building new capacity is too expensive,” Wu says. Peers like Novatek Microelectronics Corp., additionally primarily based in Taiwan, have the identical constraints.

That shortfall is displaying up in a spike in LCD costs. A 50-inch LCD panel for televisions doubled in value between January 2020 and this March. Bloomberg Intelligence’s Matthew Kanterman tasks that LCD costs will preserve rising at the very least till the third quarter. There is a “a dire shortage” of show driver chips, he mentioned.

Aggravating the state of affairs is a lack of glass. Major glass makers reported accidents at their manufacturing websites, together with a blackout at a Nippon Electric Glass Co.’s manufacturing unit in December and an explosion at AGC Fine Techno Korea’s manufacturing unit in January. Production will possible stay constrained at the very least by summer season this year, show consultancy DSCC Co-founder Yoshio Tamura mentioned.

On April 1, I-O Data Device Inc., a main Japanese computer peripherals maker, raised the value of their 26 LCD screens by 5,000 yen on common, the largest improve since they started promoting the screens twenty years in the past. A spokeswoman mentioned the company can’t make any revenue with out the will increase because of rising prices for elements.

All of this has been a boon for business. Himax’s gross sales are surging and its stock value has tripled since November. Novatek’s shares gained 6.1% Tuesday to a report excessive, pushing its improve for the year to greater than 60%.

But Wu isn’t celebrating. His entire business is constructed round giving clients what they need, so his incapacity to satisfy their requests at such a vital time is irritating. He doesn’t count on the crunch, particularly for automotive elements, to finish any time quickly.

“We have not reached a position where we can see the light at the end of tunnel yet,” Wu mentioned.

© 2021 Bloomberg



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