The Semiconductor Shortage: What next?

If you are one of the millions of people who are upgrading or building your own PCs right now, you are very well aware of the current global semiconductor shortage, especially Graphics cards. Calling this an abnoxious problem would be an understatement. The chip shortage occured in the concurrence of many events which seem easy enough to deal with on their own, but compund exponentially to create a huge problem in all industries.

The problem started with a silicon shortage, hence production is reduced as factories cannot operate to their full potential, compunded by the Pandemic. On the other hand, we have seen such a huge leap in
technology that has multiplied the power of what each device can do. Big examples include ROG Phone 5, Samsung S21, Xiaomi Mi 11, Nvidia RTX 3000 series, AMD Ryzen 5000 series, Apple M1 Macbook. All these devices have pushed the edge of computing further than before. Hence, consumer demand for electronics has risen exponentially in 2020. This is the perfect recipe for shortage of products, the problem of which has been multiplied by scalpers, who move from industry to industry and look for product shortages. If they find one, they immediately purchase products with the help of a well - made bot and sell it on second hand markets, for twice the MSRP in this case. This has got to the point where the only way to buy a graphics card is through eBay or Newegg, from a scalper and MSRP is just a joke, that says someday, far into the future, people may be able to buy those products at that price.

The biggest factor that changes the scope of the shortage is the Manufacturer. Although companies like AMD, Nvidia, Asus and Apple make good products, they don't manufacture the chips. They make products that are based around their chips. These companies license the manufacturing rights to other manufacturing companies, which is usually cheaper than manufacturing on their own. AMD, Nvidia and Apple for example, license their manufacturing rights to TSMC, a publicly funded silicon manufacturing company.

Taiwan Semiconductor Manufacturing Company Ltd.

There are also other manufacturing companies such as Intel, Foxcon, Samsung etc., but none of them are facing the level of difficulty that TSMC is facing right now, because TSMC has the highest number of contracts with other companies to produce chips such as Nvidia, Qualcomm, AMD, Xiaomi, Apple and future GPUs from Intel. Since they had to reduce production due to COVID - 19, all manufacturing at TSMC has been delayed.

Last week, TSMC had it's investor call. An investor call is when an investor of a company calls the CEO and gets information on the functioning of the compnany, to decide whether to continue investing or not. This usually happens quarter of half yearly. As TSMC is a publicly funded company, some of the information is known to the public. Click here to learn more about it.

In the investor call, CEO of TSMC, C. C. Wei, Stated the following:

First let me talk about the capacity shortage and demand outlook. Our customers are currently facing challenges from the industry side semiconductor capacity shortage, which is driven by both structural increase in long - term demand, as well as short - term imbalance in the supply chain. We are witnessing a structural increase in underlying semiconductor demand, as a multi - year megatrend of 5G and HPC related applications are exoected to fuel strong demand for our revised technologies in the next several years. COVID-19 has also fundamentally accelarated the digital transformation, making semionductors more pervasive than essential in people's life. In addition, the need to ensure suply security is creating short - term imbalance in the supply chain, driven by supply chain disruption, due to COVID - 19 and uncertainities bought about by geopolitical tensions.

The CEO then talks about how they are closely working with their customers to ensure supply in the long - term, even if it means extending the current shortage. His next statement is what gives a clear idea of when the shortage will end:

To address the structural increase in the long-term demand profile. We are working closely with our customers, and investing to support the demand. We have acquired land and component, and started the construction of new facilities. We are hiring thousands of employees and expanding our capacity at multiple sites. TSMC expects to invest about TWD100 billion over the next three years to increase capacity, to support the manufacturing in R&D of leading edge and specialty technologies. Increase capacity expected to improve supply certainty for our customers and have strengthened confidence in global supply chains that rely on semiconductors.

Here, he says that they are investing a lot of money in building new factories and that they will take a few years to completely solidify. As COVID - 19 too is not going anywhere soon, we are assured that the current factories cannot increase production as well. After taking into account the current high demand for electronics, and it doesn't take a genius to figure out that the semiconductor shortage is not going away anytime this year. The officials at TSMC expect this shortage to last at least into early 2022, and also depends on when factories can ramp up production that is dictated by vaccine distribution.

Intel

This however, is not the case at Intel. Because Intel has their own manufacturing unit and doesn't license manufacturing to many other companies, Intel based hardware is actually not in a shortage right now, at least compared to the others. But, Intel's new Xe HPG Graphics cards are to be manufactured at TSMC, which will further complicate things for both Intel and TSMC.

Another chip manufacturer is Samsung, who mostly manufacture their Exynos family of mobile processors. As they too don't have high number of contracts, their only problem, just like Intel's, is that their factories have to operate at a reduced capacity due to COVID - 19.

The enthusiast gaming communities are not the only ones causing this shortage however. Car manufacturers are multiplying the number of semiconductors in their cars each year. Hence, the auto industry is the biggest cause of this shortage, as seperate computing modules are required for each part of 'smart' cars such as entertainment, air conditioning, climate control, airbags, automatic transmission, fuel flow control, differential, andriod auto and many others, with a lot of them requiring redundant backup modules for security. Hence, this is one of the biggest contributors to making the shortage lasting longer, not to mention the ever increasing expectation from consumers.

Finally, the conclusions that we can derive from TSMC, Intel and Samsung's statements is that the crisis is not expected to end soon. Please don't go out giving false hopes to people. This shortage is expected to start to be resolved, not over, by christmas this year or anytime in early 2022 the earliest. This might make you sad or even angry. But when you consider the complexity of these factories that have to be built to end the shortage, it is an incredible feat to build one of them in 5 years. So, people looking to buy any electronics, please wait. It is a long wait, but it will be worth it. Thanks for reading. Follow my blog for more such updates and stay tuned for another update on this issue soon!