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Every single fabless semiconductor designer failed to predict demand because their customers lied to them. The car industry pulled a really dick move last year, and then pulled an even more dick move in the opposite direction, and now everyone is screwed. Back in early 2020 the car manufacturers decided that demand for cars would go down, and because they have a religious aversion to keeping any stock, cancelled lots of orders with their vendors, screwing said vendors over. Their vendors could not afford their fab slots because automotive is such a big part of their revenue, so they cancelled their fab slots. Those slots were happily sold on to entertainment and computing customers, who anticipated a jump in demand due to people staying home more. So far so normal.

However, the car industry got it badly wrong - people, afraid of public transit, started buying more cars rather than less. The car industry, being screwed due to their just-in-time religion of zero stock, was faced with their production lines stopping so they called up all their vendors, and asked for those orders back, and some more on top. The vendors then tried to get their fab slots back, and were told to come back next year. Some of them ended up buying other fabless IC designers out of their slots, causing the problem to spread. Others cancelled their existing orders to other customers, and auctioned off their existing inventory to increasingly desperate car manufacturers at a 6x to 8x premium. Anyone who was not prepared to pay that or didn't act fast enough was screwed. From that point on, a bunch of companies that depend on those lines of microcontrollers had to rapidly redesign their product to use another device, taking even more devices off the market with unplanned demand. The users of those devices then had to move to others, causing even more availability cascades. This is how two nasty moves by the car industry caused global market disruption in a number of industries that depend on electronics. This is not a normal "demand has increased, and industry can't keep up" event, it's elephants dancing and trampling everyone else underneath.

This is further aggravated by the top three automotive semiconductor suppliers (NXP, Renesas, Infineon) having their facilities destroyed in two unrelated disastrous events - a fire at Renesas' wafer processing plant, and Texas freezing over, destroying NXP's and Infineon's fabs through cleanroom contamination and process interruption. Those events took out months' worth of production, and destroyed product that had already been sold before manufacture. This would have been recoverable in a normal market, because distributor stock could hold a couple months, but in this case it was game over for non-automotive customers as all distributor stock was already gone by then.

I see this in my work every day now - customers coming to me for help with redesigning products to use a different microcontroller, or help with sourcing parts from unusual sources because their normal channels are gone. I've been in this industry a long time and never seen anything like this before. This is not a failure of supply chain analysis and projection on the part of the fabless semicon vendors. This is their biggest customers fucking their vendors over not once but twice by lying to them about their own demand.

Now I know why my business, that has nothing to do with semiconductors are booming too.

I own a store that sells parts and tools to attach things to each other (originally we sold nuts and bolts but those are unprofitable without gigantic volumes).

In the last months suddenly we started to get an unusually high amount of orders from factories intending to use our products in manufacturing, while until then all we ever got was orders for replacements parts and maintenance.

Since we are a store, not a manufacturer, our prices aren't lowest as possible... so we are very confused about why Toyota/Honda and others for example, called us wanting parts, instead of calling our supplier, since we know they have their contact anyway (I won't say who it was but for example one time a manufacturer asked us if a product would help them, and asked us to design something for their production line... we did, then they ordered the product from our supplier and never paid us anything for all "free" engineering work we did for them).

So now I can guess what happened: car industry cancelled non-semiconductor orders too, their slots got sold, and now they want it back... so my store that tends to have higher stock than others keep getting new clients willing to pay through the nose to have parts because our own supplier doesn't have them in stock and can't deliver any in short term...

The thing about a car is that BOMs are monstrously large.

If you have 1000 ICs in a car, and one of them is missing, that's a $100,000 car you can't sell.

Car industry haphazardly buying out last stocks of ICs will not help them work around that "one missing chip" problem, and production lines are potentially stuck for many more months.

The panic was undue, well, or best say of no use. The are screwed, but its of no use for them to hope for some desperate moves improving the situation now if they can't assure 100% availability of all, and every component on their BOM.

I have few buddies who went to work on an ECU for MTU/Siemens. They ran exactly into that when their companies went for a complete redesign of their ECU to run on consumer STM32. They had hopes of that such old 180nm-130nm CMOS chips easily tolerating around 130C°, they did tests, it worked fine, and then they ran into undocumented high temperature protection kicking in on a slightly newer chip revision, but they already bough few millions of them, and other ICs for a new design in inventories.

And now STM32 are really tough to find for hobby electronics when one used to find them everywhere, and cheap.

I was looking yesterday, the STM32 chip used in the typically $5 blue pill now goes for $16 a piece.

Dude, I ended up buying like 10 or 15 blue pills a year or two ago with genuine STM32 chips for like $2/each. If they are clones, they have all the peripherals and complete ram/flash from my testing.

What’s a $5 blue pill?

It's a small development board (similar to Arduino but based on the STM32F103C8T6) It's often blue so people often call it the "blue pill"

Similar Microcontroller to others like the Teensy, Elite C, Proton C, Pro Micro, etc...

All of which have been used in custom keyboard builds but are capable of doing other things as well.


It seems like the way to reduce risk would be interchangeable parts from multiple suppliers?

>undocumented high temperature protection

sneaky market segmentation by STM?

I doubt it. You want a part to shutdown if knows it is going to fail, not pull everything high and cause the device to catastrophically malfunction.

>However, the car industry got it badly wrong

You write at the beginning and end of your post that the car industry lied to their vendors, but then you also write they got it badly wrong, which means they were incorrect about their projections of demand. Surely it can't be both, and it sounds like the car industry did not lie, but simply were wrong about their predictions for the future.

Or am I misunderstanding?

Nevertheless, thanks for providing context for the whole situation.

The car industry got their demand planning wrong, so they lied to their vendors that they wouldn't need that inventory. They then turned around and went "hey actually screw that we want the inventory after all", making their previous promise that they wouldn't buy it a lie.

I would not characterize that as a lie, which typically involves an intent to deceive.

Rather, the only people with intent to deceive might be the chip vendors. They either sold chip capacity that the automakers still had the legal rights to, or they reneged on sales to non automakers to resume supplying to automakers.

No, the chip vendors had their orders cancelled by ford/gm/etc., so they cancelled their orders with the fabs, who then sold the fab time to other chip vendors for different products.

Why would you build chips you know you can't sell?

Also, people talk about how big of an impact car manufacturing is to the economy and while that is true, they aren't chip manufacturers biggest customers. Apple spends more per year on semiconductors than the ENTIRE auto industry. To top that off the automotive ICs aren't high margin stuff, so if I was a fab or chip vendor, I would be focused on higher margin stuff.

The blame for this is SOLELY on the auto manufacturers.

That's not what "lie" means.

The most surprising thing about this story is the apparently massive number of people who didn't have cars, relied entirely on public transport and then decided to buy cars? How certain are you of that analysis? Surely that is a rather rare case, as the typical public-transit-only person tends to live in a city where parking space is at a premium. Whole tower blocks cannot easily switch from transit to cars overnight just because they prefer it.

Or is this the mass exodus from American cities I keep reading about? They're buying cars because they're moving from NY to Florida, that sort of thing?

It could be both. I imagine public transit is something people would try to avoid in a pandemic. When I lived in NYC I always thought about getting a car but it never made sense to spend that money. Bring in COVID and that might have done it.

My running theory is that manufacturers and retailers continue to underprice their goods,likely because they expect to eventually return to normal. This ends up effectively hiding inflation.

Many buyers have more discretionary cash than usual due to reduced spending from lockdowns. Demand is therefore increased on the things people can and want to buy. Then resellers/scalpers see the margin and buy up inventory to arbitrage. The scarcity compounds.

Just in time delivery has its downfalls when vendors have issues, but this is a known trade-off to that model. If a company keeps inventory on hand, then they have the worry of owning excess parts that they can never use and is a sink cost later. So these companies can lose money with either, it just depends on the circumstances that cause it.

I'd be interested to learn more about the order cancellation you were saying that fabs were doing to non car manufacturers. Shouldn't contracts prevent that sort of behavior (without proper compensation)? And if they did that, they are burning bridges that would make people less likely to do business with them in the future. Maybe the car chip business is enough money to warrant such moves, but seems potentially sort sighted depending on exactly all what you said happened.

> Shouldn't contracts prevent that sort of behavior (without proper compensation)?

That depends on how big the customer/order is, no? If (as a manufacturer) you could get away with not having it in a contract, why include it?

Similarly, instead of actually cancelling they could also "lie". Say that there are capacity issues, etc. That the capacity issue is mostly because they resold the existing manufacturing capacity, is left out.

> Just in time delivery

The well-known example of this is Toyota. Interestingly, they've started ensuring they do have stocks. See e.g. https://www.reuters.com/article/us-japan-fukushima-anniversa.... I found that rather interesting.

As with all things, an optimization (e.g. agile, JIT/lean manufacturing) is predicated on certain assumptions. In this instance, "we exist in an ecosystem where our suppliers can rapidly respond to volatile demand from us."

If the assumptions fail, then it's not a failure of the optimization, but an incorrect application of it. Maybe we don't currently live in a world in which elastic semiconductor availability at scale can be assumed.

When I first studied about JIT in college, I asked my professor: Doesn't this manufacturing methodology lack fault-tolerance and isn't it deeply susceptible to natural calamities or economic failures ? He replied that it was proven, adaptable and reliable. Other suppliers would come in if some suppliers failed.

JIT (aka lean manufacturing) today has now permeated pretty much most of the global supply chain. Human civilisation is far more fragile at the moment than in the last few. hundred years.

The true argument should have been that it's more efficient (for everyone involved). Which would have invited the honest debate between the relative merits of resilience vs efficiency.

That reminds me of Taleb's idea of comparing certain investment strategies to "picking up pennies in front of a steam roller" (or insuring mortgage backed securities). It's easy money until it isn't. But when it isn't, it is really bad.

>Human civilisation is far more fragile at the moment than in the last few. hundred years.

It was less fragile when there were famines all the time?

I don't understand how people can repeat this rhetoric when it seems obvious to me that however fragile it is, it's less so than in all of history. Even if things rapidly get much, much worse, it wouldn't change my opinion.

How do you think we would determine which is the correct perspective?

There's a distinction between technology level and time disposition, I think.

Compared to a self-sufficient small-scale agrarian society (say, 10th century Europe), what would have caused famine in their time would not for us.

At the same time, we allocate our time differently than they did -- few of us actually farm for ourselves.

If we allocated time more similarly + applied current technology, it'd be pretty hard for people to starve (between improved long term food storage, GMO crop yields, and environment mitigation).

Side note: the always educational Bret Devereaux lays out a solid argument for why famines were the result of an underdeveloped monetary and trade system, that led to fragile choices being optimal for individual farmers. [0]

[0] see "Risk Control" section https://acoup.blog/2020/07/24/collections-bread-how-did-they...

Nearly all industries have moved to Just-In-Time to reduce costs, at the cost of making the entire economy more fragile. We saw this highlighted in the pandemic as suddenly there were no reserves of hospital capacity due to JIT optimization.

Heck even consumer goods like toilet paper were impacted.

JIT is useful when the end-product has a high depreciation rate and/or you forsee yourself frequently changing the part out for a newer version.

Another tendril on the issue; modern accounting practices tend to prefer JIT instead of the costs/overhead mechanics of storing inventory.

>fabs were doing to non car manufacturers

fabless design house sign wafer agreement with Fab like TSMC. I'm guessing they didn't sign the agreement thus cancel their slot.

There is no such thing as excess part since you can always offer extended warranty or something to buyers to sell them at least at cost.

People forget why "just in time" was invented and why it became a religion...

I do not fault companies for not planning for a worldwide pandemic.

I think "lying" is pretty harsh. The pandemic caused many, many people and companies to have trouble predicting future demand. To me, it's a miracle that the American economy has kept going as strong as it has. I know it's very important for car manufacturers to predict future demand, and I know it's an extreme frustration for many people whose logistics are screwed up, but really, it shouldn't be a surprise that the car manufacturers mispredicted the impact of a once-in-a-lifetime pandemic.

Maybe we need a futures market for fab slots. Then we could just blame speculators for price swings instead of a particular industry.

A futures market here could help investment in fabs.

Allow manufactures to hedge / lock in future value.

You left out the AKM fire in October, which caused some essential production to get offloaded to Renesas. I think it may actually have gone to the same Naka plant that had the more recent fire.

> because they have a religious aversion to keeping any stock

In the US people love to keep huge numbers of cars in stock. Apparently most people buy from stock there, and almost nobody does JIT, for some reason. So this isn’t the case everywhere.

I had taken parent poster to mean that car manufacturers hate keeping large stocks of their component parts, not of finished cars.

If you're talking about dealers, they're very different from the manufacturers. Pretty much every car has someone who's bought it already (whether that be an end consumer or a dealer) by the time it rolls off the line.

Creates an interesting dynamic where the dealership has to sell what's parked on it's lot right now.

Really great comment...Appreciate when people do this.

Just wanted to say that I really appreciate your comment.

if you wrote a book about it, i'd buy it.

Top comment. Really appreciate this analysis. I think there is a tangential question to be asked: are consumers really demanding "software defined cars" in the first place?

4 Forces Changing Automotive Electronics Systems


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