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Chip shortage to worsen amid global issues

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The current chip shortage appears to be the consequence of multiple global issues including the prolonging Sino-US trade dispute, Covid-19 pandemic and natural disasters occurring in regions with large semiconductor production facilities. PIXABAY

Chip shortage to worsen amid global issues

The world is undergoing an unprecedented dearth of microchips needed for a wide spectrum of everyday gadgets from gaming consoles, smartphones, tablets and home appliances to TVs, as well as automobiles that are increasingly being electrified.

The current chip shortage appears to be the consequence of multiple global issues including the prolonging Sino-US trade dispute, Covid-19 pandemic and natural disasters occurring in regions with large semiconductor production facilities.

Last week, nearly a hundred engineers at South Korea’s Samsung Electronics Co Ltd and its semiconductor contractors flew to Austin, Texas to support restarting the company’s chip factory in the US city, which suddenly stopped all of its operations from February 16 due to a power shortage.

A number of industrial factories, including the South Korean chipmaker as well as Netherlands’ NXP and Germany’s Infineon in Texas, have stopped operations in the wake of the power cut emergency triggered by a winter storm for the first time.

Samsung’s Austin factory raised 3.91 trillion won ($3.54 billion) in sales last year, churning out chips for US customers. The daily average sales are estimated to be around 10 billion won.

Since it is the first time for Samsung to shut down its chip factory completely due to the power outage, the Korean company had to dispatch its workforce to examine the impact on equipment and to restart the operation from scratch.

“It is an unprecedented event at any of Samsung’s chip plants,” said a Samsung official. “The company is in the process of dispatching engineers to help normalise the plant for smooth production of chips afterwards.”

Austin’s power company Austin Energy had initially notified Samsung of a three-day power outage, but the company has not yet been informed on power supply.

Considering that it takes several days to fully restart the semiconductor equipment, the Samsung plant could return to normal operations later this week.

Samsung’s daily losses could snowball to about 100 billion won if the plant is shuttered for 10 days.

The stoppage at major chip production facilities in the US state of Texas is expected to compound the current chip shortage problem in the automobile industry.

Since late last month, global automakers have curtailed or suspended production of a number of vehicles as they struggled to secure electronic components needed for cars, such as sensors, microprocessors for infotainment and communications chips.

The automakers and auto parts suppliers have called on the chips industry to increase production of auto chips.

Last year, chipmakers expanded chip supplies for electronics manufacturers as demand for gadgets surged owing to the growth of contactless services like telemedicine and remote learning under the Covid-19 pandemic. Chip margins from electronic devices are higher than for auto parts.

Natural disasters are becoming a major factor worsening the global chip shortage.

Japan’s automotive chipmaker Renesas Electronics Corp had to stop its production in Fukushima from February 13-16 due to the recent earthquake there.

The Japanese chipmaker is expected to resume production this week, but it would take more time to return to its full capacity, industry watchers say. Chip material suppliers there also suspended operations.

Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the absolute leader in the global foundry market, is at risk of suffering a water shortage as authorities demand cutting the use of industrial water.

“Such water shortage concerns could affect production of integrated circuits and display panels,” a Taiwanese media organisation reported.

Some point out that the current chip shortage is also attributable to stockpiling by China’s Huawei Technologies Co Ltd.

Last year, before the US trade sanctions on Huawei took effect, the Chinese tech giant snapped up large volumes of chips from companies like Samsung and SK hynix Inc.

Neil Mawston, executive director at consultancy Strategy Analytics, said: “A perfect storm of coronavirus chaos, trade-war stockpiling, and a paradigm shift in work-from-home devices is causing the chip squeeze.

“Anything with a chip is affected – cars, smartphones, games consoles, tablets and laptops. Electronic gadgets and cars will be in shorter supply or more expensive throughout 2021,” he said, according to a report by Agence France Presse.

The current supply shortage will lead to price increases, market observers say.

Market researcher TrendForce said in a report that the Texas power outage could prompt prices of NAND Flash and SSD controller ICs to rise as Samsung’s Austin plant has been producing the products on the 14-40 nanometre process node at Line S2. But Samsung was prepared for an emergency, the researcher noted.

The report said: “Despite the blackout’s relatively low impact on NAND Flash/SSD controller manufacturing, SSD purchasers, including the aforementioned PC OEMs and CSPs, may potentially accept a price hike during the negotiation process due to their urgency in procuring additional SSDs.”



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