In some cases, the shortage has an obvious explanation. Many chips are made in exactly one fab, and may be made for a few days per month or a few months per year when a line produces multiple devices or device variants. Designs are not readily transportable to other fabs. So if there is an interruption from, say, a fire or a pandemic, the global supply of that chip is stopped cold until the interruption is resolved.
If a chip has been shipping for a while, the supply chain may be full of enough inventory that end users don't see a problem before production is restored. But imagine a case where the line is stopped for months and at the same time, the demand for that device accelerates. This is what COVID did to a lot of devices. Contagion mitigation strategies sent all the operators at the Infineon Kulim fab home for months, at the same time that auto sales surged. The power switch devices popular at US automakers, and purchased for 45 cents each, started seeing longer and longer lead times until Infineon's distributors started simply reporting 'availability unknown'.
This forced buyers into the perilous broker market. I say perilous because prices quickly went out of control for this chip. End customers were paying more than US$50 for many months and in some rare cases, over $100 for this 45 cent chip. These prices were paid by, among other companies, suppliers to semiconductor equipment makers. Without that chip, they'd not be able to sell their $10 million machines, which were also seeing demand skyrocket as chip makers scrambled to add capacity. Equipment makers would pay anything to keep their subsystem supply chain alive.
When the gray market got wind of the prices being paid, all kinds of scandalous activity happened. For example, unscrupulous resellers would gather many small lots of that chip, even units with different specification variants, paint over all the markings and re-label them all with the same, current date codes. This greatly increased their salability and value, but left the end customers with an unreliable product.
Eventually, the Kulim fab came back online and is back at full production. The supply chain is mostly recovered. And that 45 cent chip is now selling for 80 cents because Infineon saw first hand the high-value applications it was used in, and the price insensitivity of their end customers.
What are some of the intricacies in the 45-cent chip that makes it hard to produce by a large number of different fabs?
In the absence of more details, it seems to me that a cheap, 45-cent, chip should not be so complicated that only a small number of companies can produce it on-demand.
It's not a matter of intricacy. It's a 'low tech' power chip that is made on fully depreciated and outdated equipment. Most likely all Infineon lines were running at capacity at that time and they had no place to put it. Setting up a new line would not make business sense since a new equipment would cost in the realm of $250 Million for a line, and take a year or more to set up. Not to mention, lead times for new equipment was also extending. By that point, the crunch may as well have ended and they'd then have more capacity for that device than they needed, and no ROI on their $250M.
> Setting up a new line would not make business sense since a new equipment would cost in the realm of $250 Million for a line, and take a year or more to set up. Not to mention, lead times for new equipment was also extending.
Here's where this could get ironic: what if they wouldn't be able to set up that line anyway, since the equipment they'd need itself requires the very chip they just stopped producing?
I wonder if such circular dependencies are already a consideration in the semiconductor business.
I feel like the number of such chips required for “production scaling” would be so low that they could find a cache of said chips for said purpose if they wanted/needed to.
I am having trouble wrapping my head around a business that costs 250mm and a year+ to enter not increasing its prices earlier or even more than the current 80 cents. It must be that they are also limited in their ability to increase price by people just paying the cost to redesign to another chip in the medium to long term?
knowing it would cost that much ahead of time would let the purchaser and engineer work together to determine if it would be more cost-effective to swap that part out for a similarly specced but less expensive chip, or rework the circuit to use a slightly different chip, perhaps with two chips instead, or more jellybeans to make up the lost functionality
a ten million dollar machine missing a 45 cent part probably costs a few hundred thousand to redesign around that part. a mass market vehicle that needs multiple of those part per SKU would be cheaper to re-engineer
> knowing it would cost that much ahead of time would let the purchaser and engineer work together to determine if it would be more cost-effective to swap that part out for a similarly specced but less expensive chip, or rework the circuit to use a slightly different chip, perhaps with two chips instead, or more jellybeans to make up the lost functionality
And now you have not one but 2-3 chips that are in demand and price rises for those too.
Also in case of cars and similar equipment there would be a bunch of re-testing required so that drives cost of reengineering hard.
Especially if said part was used as "jellybean" across a lot of modules just because it's cheaper to buy same part in bulk
if a part started off costing 45 cents, it can't be too difficult to reproduce using transistors or similar components from competitors. re-certification for simple subsystems like that (or just using a competitor's chip) would still be less expensive than paying $100 per part on a SKU/car that you are producing 10,000+ units of. TI's 74AHCT595 is probably functionally similar to Nexperia's/NXP/Diodes Incorporated (digikey shows those 4 vendors for that chip)
there is also the option of the buyer just saying 'nope, not worth it', and cancelling the product line the chip was bound for, which would be worse for the chip manufacturer who just sunk millions into producing the part
Oh, I mean, if it costs enough to enter the market that other people don’t step in during times of high demand and scalping, why don’t the original manufacturers raise their prices to closer to what the scalpers/resellers are getting, at least until some competition arrives. there must be some mechanism making that unattractive / not work is all I mean - maybe the fact that people can redesign to a different chip.
If you raise your prices too much, people will switch to competitors. This means that nobody is buying your product, so you'll never get to recoup the engineering expenses. Even worse, you'll become known as a manufacturer with unreliable pricing, making your chips very unattractive for new designs.
Having a steady and well-known demand might be a lot more valuable than the short-term profit you can squeeze out of the current shortage.
I guess if those chips were much more expensive for a long time, car manufacturers would find other solutions than using them. A shortage makes them wait rather than redevelop the whole product. So for the chip manufacturer it's better to keep prices low to avoid losing customers altogether.
The problem is that the different fabs are, well, different. While on a high level they are basically doing the same thing, the actual process itself can vary quite a bit.
While you start with a fairly generic design, the final production artifacts are highly specialized to the fab. The fab essentially provides a "library" of components which are used to translate the generic design into something ready for production.
Switching fabs means re-engineering your design, re-running prototypes, re-validating basically every single part of your chip. This is a process which can easily take many months, perhaps even a year. Not to mention significant engineering costs.
Doing all this once is acceptable because you can just keep using that single design for decades. That's why each individual chip can be so cheap: production cost is near-zero, and engineering cost can be amortized over a giant volume.
It's an interesting article overall - but it seems to be half written now, and half written earlier in 2022. There's no publish date on the blog article that I can see.
Google seems to think it was posted 3 days ago - but in the article you have sentences like "However, some of the most in-demand phones are expected to become more available by February 2022." Which adds to the confusion of the currency of some of the statements / observations.
I'd go further and argue that this contains no new information and it's basically a sales pitch for outsourcing your electronics manufacturing to Jabil.
This video seems to be doing much better job at explaining the problem [1].
Long story short there's high demand for trailing edge (50nm+) tech, but it is not worth investing in building more of these for number of reasons mentioned in the video (huge investment, long time, and despite high demand it's still only low percentage of profit compared to cutting edge)
I suppose prices must increase but likely there are some long term contracts in place.
One other thing that's not mentioned is qualifying the new fabs and porting old designs. Each design (even the old ones) would need to be requalified. That could easily be $Millions for a $0.1 die. Until you've made >>10 million parts (1000s of wafers) you won't be cost competitive even in a converted old depreciated fab... Now add the costs of building a new fab and bringing it on line?!
Realistically, I can see building new 28nm 12" fabs and designing new die (for the same purpose) for the smaller geometry, but anything older/larger will just make due with what is available. The ecosystem existed because newer fabs were always taking up the demand slack, while the older lower cost fabs were fully depreciated and didn't take much engineering effort to keep running the same old process.
> Realistically, I can see building new 28nm 12" fabs and designing new die (for the same purpose) for the smaller geometry, but anything older/larger will just make due with what is available. The ecosystem existed because newer fabs were always taking up the demand slack, while the older lower cost fabs were fully depreciated and didn't take much engineering effort to keep running the same old process.
Also, power matters. Smaller process means jack shit if the part needs the same amount of current running thru it. Anything analog is harder to shrink (as you care about the detailed parameters of transistors, not just the on/off state, so most likely full redesign), and anything that needs to pass enough current and enough voltage just can't be shrunk in the first place.
Luckily, a lot of the really high power (moderate voltage) stuff is moving to SiC and GaN which is smaller and much higher power density. So there's some reason to hope for new fabs to ease capacity constraints.
The global chip shortage reminds me of the "just in time" training that corporate mandated for all engineers at my large cap aerospace company about ten years ago.
"Is it always better to avoid having spare parts? Maybe in some cases..."
"No," the older engineer a few seats away from me interrupted. "Keeping extra inventory is a waste of money."
He actually thought that redundancy is a waste and selecting parts doesn't involve any consideration of uncertainty...
But he is right! Extra inventory has a cost. Each cost increases the final price.
And the customers, they don't buy from you because you have extra inventory in case of a global pandemic (as well as they don't buy from you because you employ local staff or because you pay them well or because you make an actual effort to reduce your carbon footprint): no, customers buy cheap.
Whenever you are tempted to criticize a corporation about some decision they took, do consider those pesky, cheap customers first.
That's one of the main presuppositions in Lean Manufacturing that is so entrenched and so insidious. What's even more annoying is when managers who have worked in a Lean environment come over into our industry of steel fabrication (high-mix low-volume, where lean is low-mix high-volume), and they assume that 1) we're screwing up because nothing is consistent in our charts and graphs and 2) that if they just make us do Lean stuff, it will magically improve.
Lean manufacturing is a lot about avoiding waste, but it doesn't necessarily mean removing all buffers and stocks, which is a type of waste, if this is causing a much worse type of waste, which is making the entire production line useless because it is missing input material. I really think "lean manufacturing" = 100% JIT is a misconception and an over-simplification.
The argument becomes how much buffer and stock do you need? How long can you fade a falloff in supply? One hour? One day? One week? What is "wasteful" vs. what is wise?
This way, the costs of keeping extra inventory is acknowledged, while underscoring it also buys you something. Whether or not you need it, or how much, is for discussion, but treating spares as pure waste by definition doesn't feel responsible, and is how you end up in trouble if there are supply chain disruptions - whether global or local.
And in more general sense: money is indeed cheaper to store than physical items, but can only substitute for them if, at the time you need those items, you can actually buy and get them.
I've dealt with US companies as European for a couple of things, and I think that I've been avoiding companies from there for the past couple of years due to speculation about this chip shortage, I've 2 bikes from US one super 73 and one bird bike, for the bird bike in particular, in order to have the engine replaced I've had to wait for 2 months, due to chip shortage, while the shop I've bought it from has had the whole time new bird bikes delivered to sell, so yeah, I think a good part of the global chip shortage when it comes to post-sales components is speculation, I've got a vanmoof since then and it takes a week get damaged pieces (not needed replacement parts so far, but I've friends with vanmoof who had)
But yeah as a rule of thumb stay away from super73 and birds bikes
House Speaker Nancy Pelosi (D-Calif.) revealed in regulatory filings Tuesday her husband Paul Pelosi sold millions worth of stock in chipmaker Nvidia at a loss a day before the Senate passed a multibillion-dollar bill aimed in part at boosting U.S. chip manufacturing that sent Nvidia shares surging, a decision Pelosi’s office says was to avoid further “misinformation” about the couple’s investments.
Drew Hammill, Nancy Pelosi’s deputy chief of staff, wrote in a statement to Forbes: “Mr. Pelosi decided to sell the shares at a loss rather than allow the misinformation in the press regarding this trade to continue.”
Why are Congresspeople even allowed to own individual shares, or manage their own investments? If they're allowed to manage their own investments at all, they should be limited to investing in broad index funds.
FYI, that timelines is incorrect and so is the itinerary for her [2].
She visited TSMC NOT Nvidia (NVidia are based in California).
She did plenty of other things in the (very short) visit. China announced it was halting sand exports (and other trade) the same day [3]
He sold his Nvidia shares (Options actually, sold for a loss) more than 2.5 months after all of this (Oct 17th [1], she visited on Aug 2nd). He also sold his Micron Tech holdings at the same time (which benefitted hugely from the CHIPS act) so he traded exactly the WRONG way if he'd known what was coming.
After departing Malaysia, Pelosi's delegation arrived without incident in Taipei, Taiwan, at 10:43 pm National Standard Time on the evening of August 2 via a US Air Force transport plane and was received by Minister of Foreign Affairs Joseph Wu and Sandra Oudkirk, Director of the Taipei Office of the American Institute in Taiwan (AIT).[6][29] Pelosi tweeted that her visit was a sign of the United States' "unwavering commitment to supporting Taiwan's vibrant democracy."[1][30] Upon Pelosi's arrival, both the ruling Democratic Progressive Party and opposition Kuomintang endorsed the visit[31] and Taipei 101 illuminated a welcome message for the delegation.[5] The delegation stayed overnight at the Grand Hyatt Taipei.[32]
(...)
Following a breakfast meeting at the American Institute in Taiwan on the morning of August 3, Pelosi visited the Legislative Yuan with her delegation.[36] While there, she was received by vice president of the Legislative Yuan, Tsai Chi-chang and addressed the legislature in a short speech, saying Taiwan was "one of the freest societies in the world". She advocated further US economic cooperation with Taiwan with the CHIPS Act, and in areas relating to climate change, the COVID-19 pandemic, and democracy.[37][38]
She proceeded to the Presidential Office Building and met with President Tsai Ing-wen, who awarded her the Order of Propitious Clouds (with Special Grand Cordon).[39][40] A closed media session was held afterwards with only Taiwan's Central News Agency, Bloomberg News, and Japan's Asahi Shimbun in attendance.[41] Pelosi expressed her views that China's anger at her visit was due to her being a woman and not because of her rank as the highest-level American politician to have visited Taiwan in 25 years.[42]
At noon, President Tsai hosted a banquet at the Taipei Guest House to entertain Pelosi's delegation. Taiwan Semiconductor Manufacturing Company founder Morris Chang, chairman Mark Liu, and Pegatron vice chairman Jason Cheng were invited to attend.[43][44]
The delegation's final activity was a visit, at about 2:40 pm for an hour, to the National Human Rights Museum at the Jing-Mei White Terror Memorial Park documenting the White Terror period in Taiwan. During the visit, they met with Wu'erkaixi, a former student leader of the Tiananmen Square protests, Lam Wing-kee, a dissident Hong Kong bookseller, and Lee Ming-che, a Taiwanese activist who was imprisoned in China[45][46] and Kelsang Gyaltsen Bawa, the representative of the Tibet Office in Taiwan.[47]
In a press release, Pelosi declared that the visit "in no way contradicts longstanding United States policy, guided by the Taiwan Relations Act of 1979, US-China Joint Communiques and the Six Assurances. The United States continues to oppose unilateral efforts to change the status quo."[48] NSC representative Kirby reiterated this perspective at a press conference held during the visit saying, "The Speaker's visit is totally consistent with our longstanding One China policy."[49] Pelosi departed Taiwan for South Korea after 6:00 pm on the evening of August 3.[50]
(Personal opinion: that's a lot of work for an 82 year old woman...)
Nvidia and TSMC are probably the two most important semi-conductor companies on Earth. Semi-conductors is probably one of the most important geopolitical issues. Not saying there isn’t corruption, but it’s unsurprising that there’s a lot of overlap.
The two most important companies are TSMC and ASML.
In July 2021, Thierry Breton European Commissioner, visited ASML and announced a goal of at least 20% of world production of semiconductors in Europe by 2030, and support via a European Alliance on semiconductors.[9] After reporting earnings in July 2021, the company said they had a near monopoly for machines used by TSMC and Samsung Electronics to make the advanced chips.
Does it? A lot of the events involve China’s influence over Taiwan and the impact on the semi-conductor industry. E.g. China disrupting the chip supply chain in Taiwan and the U.S. responding by supporting the domestic chip industry. What is the conspiracy there exactly? That Pelosi conspired with China to create the pretext for a bill that would support the domestic chip industry to profit off the stock market?
> China disrupting the chip supply chain in Taiwan
The US started the trade war and 'sanctions'. Just like the long-running low key trade war it started against the Eu in 2005. Its not China doing anything.
The US even violated or rejected many of the WTO rules it previously backed in enforcing on all other countries when it had the market advantage. Which is one reason why practically every single country outside various European ones are converging around China, India, BRICS etc - they see the US and its satellites as unreliable partners who would renege on any word anytime its convenient for them.
Insider trading is not a conspiracy. I think insider trading is bad, and the laws should be amended so that congress is forbidden from insider trading. But if the only “smoking gun” is insider trading then this is a non-issue. It’s legal for members of congress to trade with non-public information, and many members in both parties do it.
Clearly people find it distasteful when politicians do legal but immoral things. It's a non-issue legally speaking, but one wonders why this gaping source of misaligned incentives remains.
I agree. But it’s not something that requires a “special prosecutor to investigate the allegations”, which is the statement that started this conversation.
If the point of allowing trading is better price discovery, then banning insider trading doesn't make all that much sense, because the insiders are contributing information by improving the price.
(Also makes you wonder why analysts bother meeting with CEOs since the CEOs can't share non-public information.)
If a chip has been shipping for a while, the supply chain may be full of enough inventory that end users don't see a problem before production is restored. But imagine a case where the line is stopped for months and at the same time, the demand for that device accelerates. This is what COVID did to a lot of devices. Contagion mitigation strategies sent all the operators at the Infineon Kulim fab home for months, at the same time that auto sales surged. The power switch devices popular at US automakers, and purchased for 45 cents each, started seeing longer and longer lead times until Infineon's distributors started simply reporting 'availability unknown'.
This forced buyers into the perilous broker market. I say perilous because prices quickly went out of control for this chip. End customers were paying more than US$50 for many months and in some rare cases, over $100 for this 45 cent chip. These prices were paid by, among other companies, suppliers to semiconductor equipment makers. Without that chip, they'd not be able to sell their $10 million machines, which were also seeing demand skyrocket as chip makers scrambled to add capacity. Equipment makers would pay anything to keep their subsystem supply chain alive.
When the gray market got wind of the prices being paid, all kinds of scandalous activity happened. For example, unscrupulous resellers would gather many small lots of that chip, even units with different specification variants, paint over all the markings and re-label them all with the same, current date codes. This greatly increased their salability and value, but left the end customers with an unreliable product.
Eventually, the Kulim fab came back online and is back at full production. The supply chain is mostly recovered. And that 45 cent chip is now selling for 80 cents because Infineon saw first hand the high-value applications it was used in, and the price insensitivity of their end customers.