It costs only $ 1, but the shortage of chips is causing global crisis

It is hard to believe that an industry worth $ 450 billion globally will fall into such serious crisis today. But if you look at the $ 1 chip in the display driver, you will better understand the source of this.

The global semiconductor industry is made up of hundreds of different types of chips, with top names like Qualcomm or Intel making chips that cost between $ 100 and more than $ 1,000, running from each. Compact smartphones to supercomputers.

Opposed to them are the screen control chips. Its sole job is to put basic scripts on the screen of a phone, computer, or navigation system. Standing next to Qualcomm or Intel’s super-chips, the display controller chips are just an unremarkable component.

But the chip industry’s current problem – and more and more companies outside of it, like automakers – is not having enough display controller chips for all of them. Manufacturers, so they cannot keep up with the rapidly increasing demand, so prices are also pushed up. That contributes to supply shortages and increased costs for LCD panels – an essential component for TVs and laptops, as well as cars, planes and high-end refrigerators.

“It’s not like what you need to do. If you already have everything, but don’t have a screen controller, you won’t be able to perfect your product. “Stacy Rasgon, semiconductor watcher at Sanford C. Bernstein.

“I have never seen anything like that in more than 20 years, since my company was founded“Jordan Wu, co-founder and CEO of Himax Technologies Co., one of the leading manufacturers of display controller chips.”Every sector has a shortage of chips. “

Nobody wants to make cheap chips

Mr. Wu’s Himax firm is typical of the current situation. Founded in 2001, Himax’s reputation in the industry comes from providing control chips for monitors and laptops. After going public in 2006, they expanded their operations to smartphones, tablets and touch screens. Now their chips are used in a wide variety of products, from phones and TVs to cars.

Mr. Wu said he cannot increase the output of screen controller chips by forcing employees to work harder. Himax only designs these chips and then orders chip outsourcing firms like TSMC and United Microelectronics Corp to manufacture them. Their chips are also only made on older processes, say 16nm, instead of the most modern processes like 5nm on high-end chips.

The bottleneck here is that even old process chip production lines are running at full capacity. The pandemic is driving demand soaring that manufacturing partners cannot provide enough screen control chips for every panel in computers, TVs, and game consoles – not to mention new products with screens. like refrigerators, thermometers and cars.

The shortage is particularly serious for cars. The controller chips used in this area are manufactured on 8-inch wafers, instead of the more advanced 12-inch wafers. Sumco Corp, one of the leading wafer manufacturers, says output from 8-inch wafers is currently only about 5,000 per month – much lower than in 2017.

And yet, production lines in the old process are not expanded when it does not bring economic benefits. Existing lines have been fully depreciated and fine-tuned for near-perfect productivity, meaning higher-end and basic-type display controller chips can be made for around $ 1 and up. a little. Buying new equipment and starting with low productivity means higher costs.

Mr. Wu said: “Too expensive to build new production lines“Other colleagues of Himax, such as Novatek Microelectronics, have had the same problem.

The lack of chips is causing LCD panel prices to skyrocket. The 50-inch LCD TV panel has doubled between January and March 2020. Bloomberg Intelligence also forecasts LCD prices will continue to increase at least until the third quarter of this year. It all comes from “terrible shortage“of the chip that controls the screen.

Misfortunes never come alone

The situation was even worse when the glasses were also lacking. Many major manufacturers are having accidents at the manufacturing sector, including a power outage at Nippon Electric Glass in December and an explosion at AGC Fine Techno Korea in January. According to forecasts of the company DSCC, this tension will last at least until the summer of this year.

Not only the display controller, a similar drop in the supply chain is happening to many other seemingly insignificant components – power management chips, for example, are also short of supply – and spread. quickly out to the global economy. Automakers such as Ford Motor, Nissan Motor and Volkswagen AG all have to narrow production, possibly losing about $ 60 billion in revenue to the industry this year.

“The painting is not solitary” when many other bad events have just happened. A rare snowstorm in Texas has knocked out America’s chip manufacturing capabilities. A fire in a factory owned by Renesas, a major Japanese chipmaker, shut the place down for a month. Samsung issued warnings about “serious imbalances” in the semiconductor industry, while TSMC said it could not keep up with the current skyrocketing demand as its factories were more than 100% operational wattage.

Demand has increased dramatically due to the Covid-19 pandemic

The beginning of the current crisis lies in the mishandling of demand when the Covid-19 pandemic spread last year. When the epidemic began to spread around the world, almost everyone assumed that everyone would cut back and drive demand down – but it turned out to go up in an unexpected way.

People who had to stay indoors began to increase their purchases of technology. They buy better computers, larger screens that can work remotely, study online or have fun. 4K TVs, hand-held electronics, milk wheyers, oil-free fryers or grinders … make their home life in isolation more comfortable. Eventually a pandemic catastrophe turned into a Black Friday event that lasted for many months.

Most surprising is the car manufacturers. Everyone had to stay indoors and who needed cars – firms started shutting factories down, and asked partners to make more components, including the chips essential for cars.

But then from the end of 2020, when the pandemic has calmed down and people started pouring into the streets. This time they stopped using public transport but instead switched to private car, causing demand to skyrocket. When automakers reopen factories and rely on chipmakers like TSMC or Samsung to meet their needs, it’s too late, they are still straining to meet demand for customers. your loyal goods.

As a result, although revenue soared and the stock price has climbed three times, Mr. Wu is still not happy with the current situation. “We are not yet at the point where light can be seen at the end of the tunnel. “

Consult Bloomberg