the rise in the cost of chips, the aggravation of the problems of the automotive industry, the gaming industry and medicine

A few weeks ago, we published an article in which we collected the opinions of players in the semiconductor electronics industry about the chip shortage crisis. Then the opinion of a couple of optimistic experts got into the material.

But it seems that optimism was not justified. The fact is that the situation continues to worsen, and not only does the deficit remain relevant, but also the chips are becoming more expensive. So electronics manufacturers, including the automotive industry and medical equipment suppliers, will have to work hard to get the chips that have risen in price by several tens of percent in the right quantities.

What’s up with the price increase?

Since demand is now growing at a rate of about 17% per year, and supply is increasing at only 6% over the same time, it is easy to understand how serious the difficulties are for vendors of devices that use these chips. At the same time, suppliers of semiconductor components cannot produce more than now – about 97% of the capacities of the main manufacturers are loaded.

But there is nowhere to go – buyers have to look for any opportunity to purchase large or at least some batches of chips. Manufacturers understand this, and take advantage of the situation.

TSMC announced a winter price increase in the fall of 2021. The company raises the cost of relatively simple chips by 20%, and more advanced ones by 10%. But it is not only TSMC that increases the cost of production, but also the South Korean company Samsung, which was also announced.

At the same time, TSMC representatives say that the current high prices are largely due to the activities of intermediaries. Allegedly, such companies, supplying the chips bought at the factory, resell them to consumers at a much higher price. Particularly active are the players in the automotive market, but it seems like cheating intermediaries have been noticed in other industries as well. It is worth recalling that this is the version of semiconductor component suppliers. It is not so easy to check it, because in many cases the supply chain is closed from prying eyes.

Semiconductor manufacturing is a very interesting topic, but we have other articles, check it out – we talk about:

Little “raspberries” in a large data center
→ Apple’s new SoCs – M1 Pro and M1 Max
→ Creating your own server enclosure

Why is everything so difficult? After all, you can just take and increase production volumes

And here it is not. The problem is that the process of manufacturing and supplying chips is well-established, but it has not even one, but several “bottlenecks” at once. Factors negatively affecting the industry are superimposed on each other, which ultimately leads to the current situation – an extreme shortage of components.

We have already written about trade wars, climate problems, lack of resources. But there is another problem – the complexity and high cost of microchip production. One of the main links in the silicon chip production chain is the creation of a crystal using the Jan Czochralski method, the so-called CZ process. Semiconductor crystal blanks are gradually drawn out, which happens very slowly, until the crystal reaches the desired size. Then it is cut into blanks of the required size, many technological processes are used, after which the finished wafers are cut into blanks for chips. Their layout is the last step in the chain.

Growing crystals is only possible with the necessary production infrastructure, which is extremely complex. Chip makers even joke that making semiconductor components is much more difficult than preparing a rocket for flight into space and then launch. If it were possible to simplify the process of preparing a blank crystal, most likely, the shortage would be overcome relatively quickly.

Well, chip manufacturers who plan to increase production volumes have to wait many months for the preparation of the necessary infrastructure. In addition to technology, factories must be very clean – you can say that the conditions for the production of chips must be strictly sterile in terms of the presence of dust and other third-party components in the air. You can’t build something like this from scratch.

Unexpectedly injured

Many say that in the era of a total shortage of semiconductor components, vendors of gaming devices, laptops and PCs, and complex household appliances have problems. But there are industries that have been hit really unexpectedly by the current semiconductor shortage.

First of all, it is the automotive industry. Yes, modern cars are gradually digitizing, turning, figuratively speaking, into “smartphones on wheels”. But few could have foreseen a wild shortage of chips in the automotive industry.

Analysts at The Boston Consulting Group (BCG) predict that the global shortage of components will lead to a reduction in car production by 7-9 million vehicles per year. Naturally, this problem will provoke the emergence of others, so that in the end we will get (already almost got) a domino effect with a layering of various factors from different industries.

In 2022, most likely, the situation will be similar to 2021, if not worse. Thus, JPMorgan experts believe that the market will begin to recover no earlier than 2023. But there are also experts, for example, from the Daimler concern, who believe that the problems will continue next year.

Secondly, the deficit affected the medical industry. The fact is that medicine is also actively digitalized. In many cases, the same ventilators are complex devices with the latest chips.

Well, since the volume of production of such equipment is growing due to the pandemic, the need for chips from medicine is also increasing. Tomographs, ultrasound diagnostics, ventilators, infusion pumps and many other modern medical gadgets are now produced on the basis of relatively complex electronic components. Of course, there are no powerful video chips or processors, but the shortage has now spread even to the simplest semiconductor components.

It has gotten to the point that medical equipment manufacturers are modifying models of past years, rather than developing new ones.

There is still hope for a solution

Despite the gloomy prospects, manufacturers are still trying to solve the problem – most likely, not to make everyone feel better, but simply because it can make more money by producing large volumes of semiconductor elements.

The same company TSMC is working most actively in this direction. She built a huge complex that will produce 3nm chips, and in large volumes. In addition, TSMC has also built a new 5nm chip manufacturing facility. Analysts believe that in the coming years, the need for chips will increase several times, so the Taiwanese company is “preparing the sled” now, so that later it will not be too late.

At the same time, she does not forget about profits – according to TSMC’s own forecasts, by the end of the year, the profit indicator should grow by a quarter, if not more. Well, considering all the circumstances mentioned above, then, most likely, the profit will increase quite significantly.

A significant increase in production can also be dangerous

And this is bad, and that is not good – indeed, there is a problem in increasing the volume of chip production. The fact is that if the demand for them falls, for any of the dozens of reasons why this has already happened before, then there will be a problem of overproduction.

Now TSMC, Intel, Samsung and other component suppliers are trying to accelerate as much as possible. If demand falls sharply, overproduction will be simply gigantic. And this means a sharp drop in prices and a crisis in the chip manufacturing industry.

But that, as they say, is a completely different story …

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