Mon. Dec 6th, 2021

2. Who is affected?

Chip shortages are expected to wipe out $ 210 billion in carmaker sales this year, with production of 7.7 million vehicles lost. “Never seen anything like it,” tweeted Elon Musk, Tesla’s CEO.

Samsung warned that they saw a “serious imbalance” in supply and demand globally. TSMC predicted that the shortage could extend into 2022. Some broadband providers faced delays of more than a year when they ordered Internet routers.

Apple said in April that supply constraints affected sales of iPads and Macs, which they said would turn $ 3 billion into $ 4 billion USD out of their third-quarter revenue. In July, it added iPhones to the list. Nintendo said shortages slowed production of their Switch gaming device. Toyota Motors suspended production at 14 factories in September.

3. What is a chip?

This is what makes electronic items smart. Made of a material, usually silicon, that “semiconductor” electricity, the chip performs a number of functions.

Memory chips, which store data, are relatively simple and are traded as goods. Logical chips, which run programs and act as the brains of a device, are more complex and expensive.

These often bear names like Apple or Nvidia, but these companies are actually only semiconductor designers who are manufactured in factories called foundries.

4. Why is it so difficult to compete?

Manufacturing advanced logic chips requires extraordinary precision along with huge long-term bets on a field that is subject to rapid change. Facilities cost billions of dollars to build and equip, and they have to run flat out 24/7 to get the investment back. But it’s not just that. A factory also consumes huge amounts of water and electricity and is vulnerable to even the slightest disturbance, whether it is due to dust particles or distant earthquakes.

5. Who are the major producers?

* TSMC was a pioneer in the foundry industry – pure manufacture of chips for others – with state aid in the 1980s and now produces the most sophisticated chips. Everyone knocks a way to his door to get them; its share of the global foundry market is greater than the next three competitors combined.

* Samsung dominates in memory chips and trying to strengthen TSMC’s gold mine. It has improved its production technology and won new orders from companies such as Qualcomm and Nvidia.

* Intel is the last US heavyweight in the field, but its business is heavily concentrated on manufacturing its own branded chips that act as the central processing unit (CPU) for laptops and desktops. Production delays have made it vulnerable to rivals who gain share by using TSMC to produce their designs. In March, Intel unveiled an ambitious bid to regain its production lead and break into the foundry industry by spending $ 20 billion on building two new factories in Arizona. It is also looking to buy other chip manufacturers.

Sony PlayStations are hard to find in stores due to the global chip shortage.

Sony PlayStations are hard to find in stores due to the global chip shortage.

* Smaller manufacturers includes US-based GlobalFoundries, China’s Semiconductor Manufacturing International Corp. (SMIC) and Taiwan’s United Microelectronics. But they are at least two to three generations behind TSMC’s technology. Famous names like Texas Instruments, IBM and Motorola, all US companies, have left or given up trying to keep up with the most advanced manufacturing.

6. How is the competition going?

The two giants are spending big bucks cementing their dominance: TSMC said in April it would increase its construction costs over the next three years to $ 100 billion, including about $ 30 billion on capacity expansion and upgrades in 2021, from a record 17 USD billion last year.

Samsung is earmarking about $ 151 billion for a decade-long project to capture its Taiwanese rival, part of a broader plan by South Korean companies including SK Hynix to spend about $ 450 billion on building the world’s largest chip manufacturing base.

China is pushing hard to catch up as part of its efforts to reduce its reliance on US technology, spurred on by US measures to restrict access to US intellectual property, such as software and equipment to design chips. But China has a long way to go.


For example, in the automotive sector, Chinese chip design firms are still unable to come up with the advanced chips that serve as the brains of today’s ever smarter cars. China again promised this year to increase spending and conduct research into groundbreaking chips as part of its new five-year economic plan.

Although it did not provide details, SMIC has announced plans for a $ 2.35 billion facility with funding from the city of Shenzhen. The factory can begin production in 2022 and eventually produce about half a million 12-inch wafers each year, which are used to make chips. By comparison, TSMC shipped about 12.4 million such wafers by 2020.

7. What about outside Asia?


The United States, which is still a world leader in chip design, seeks to encourage companies to build or expand advanced factories domestically to address what Trade Secretary Gina Raimondo called a risk to national and economic security. In a report released in June, President Joe Biden recommended that Congress allocate at least $ 50 billion to support semiconductor research and production in the United States. (A bill that easily passed the Senate the same day included $ 52 billion.)

His administration will play a role in formulating tax incentives for a proposed $ 12 billion TSMC plant in Arizona and a $ 17 billion plant that Samsung plans to build in Texas.

Similarly, EU officials are exploring ways to build an advanced semiconductor plant in Europe, possibly with the assistance of TSMC and Samsung, as part of its goal of doubling chip production to 20 percent of the global market by 2030.

The United Kingdom is investigating California-based Nvidia’s $ 40 billion deal to buy British semiconductor designer Arm Ltd. for both national security and antitrust reasons.

8. Where is the technology heading?

As 5G mobile networks grow – and drive the demand for data-heavy video and game streaming – and with many people working from home, the need for more powerful, energy-efficient chips will only grow. TSMC and Samsung are thus working to make transistors more and more microscopic, so that more can fit into a single chip.

Even small improvements can provide significant cost savings when multiplied across the full scale of something like Amazon Web Services, a cloud computing provider. The emergence of artificial intelligence is another force pushing innovation, as AI relies on massive computing. More efficient designs will also help develop the so-called Internet of Things – a universe of smart or connected devices from phones to light switches to refrigerators.

9. How does Taiwan fit into all this?

Island democracy emerged as the dominant player in part due to a government decision in the 1970s to promote the electronics industry. It was helped by a technology transfer deal with RCA Corp., the former US electronics giant, and the West’s trend toward outsourcing.


Matching its scale and skills now would take years and cost a fortune: Boston Consulting Group and the Semiconductor Industry Association estimated that it would take more than $ 1 trillion over 10 years for the United States to achieve “complete manufacturing self-sufficiency” of chips.

Chinese President Xi Jinping plans to invest $ 1.4 trillion by 2025 in key technologies, including semiconductors, and appointed a top deputy to lead the initiative. However, political tensions can disrupt the race. The Biden administration has signaled that it will continue its efforts to restrict China’s access to US technology – including that used in Taiwan’s foundries.

More ominously, the United States could face difficulties if it found itself cut off from them. China has long claimed the island as an apostate province and threatened to invade to prevent its independence.

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