Global Chip Shortage
Since the beginning of the pandemic, the demand for microchips has far exceeded supply, causing problems in every industry that relies on computers.
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My guest today is Dr. Willy Shih. He’s the professor of management practices at Harvard Business School. He’s an expert on chips and semiconductors — he spent years working at companies like IBM and Silicon Graphics. And he’s also an expert in supply chains — how things go from raw materials to finished products in stores. Willy’s the guy that grocery stores and paper companies called in March 2020 when there was a run on toilet paper. If anyone’s going to explain this thing, it’s going to be Willy.
Ian King et al. (via Hacker News):
Building an entry-level factory that produces 50,000 wafers per month costs about $15 billion. Most of this is spent on specialized equipment—a market that exceeded $60 billion in sales for the first time in 2020.
Three companies—Intel, Samsung and TSMC—account for most of this investment. Their factories are more advanced and cost over $20 billion each. This year, TSMC will spend as much as $28 billion on new plants and equipment. Compare that to the U.S. government’s attempt to pass a bill supporting domestic chip production. This legislation would offer just $50 billion over five years.
Once you spend all that money building giant facilities, they become obsolete in five years or less. To avoid losing money, chipmakers must generate $3 billion in profit from each plant. But now only the biggest companies, in particular the top three that combined generated $188 billion in revenue last year, can afford to build multiple plants.
Yang Jie et al. (via John Gruber):
Taiwan Semiconductor Manufacturing Co. plans to increase the prices of its most advanced chips by roughly 10%, while less advanced chips used by customers like auto makers will cost about 20% more, these people said. The higher prices will generally take effect late this year or next year, the people said.
IPhone 13 pricing is same as 12. So much for new pricing due to semiconductor shortages.
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The Ian King article annoyed me somewhat. True, high performance CPUs and other cutting edge chips have to be made on the latest process, which is always a moving target and requires huge investments for something that will be cutting edge for only a few years.
But chips for microcontrollers and generic ARM cpus, which are the bread and butter of the industry, are made on older processes in mature fabs. Because they don't need to be cutting edge, and because making them on the newest process is more expensive. Those fabs are cheaper to build and continue to work for decades. The chips they make are the ones that are suffering shortages the most.
Apple co-invested in those facilities at TSMC and gets special pricing.