In 2021, Apple will continue to be recognized as the “Supply Chain Master” by the renowned advisory organization Gartner. Apple CEO Tim Cook is also known as the “Supply Chain Guru” by Forbes.
[First Time] Global Supply Chain Tightness, Chip Shortage, South Korea’s Automobile Production in the Third Quarter Drops to a 13-year Low
AlthoughAppleWith such excellent supply chain management, global electronic component suppliers often give priority to Apple. However, Odin mentioned in the analysis of Apple’s last quarter’s earnings that Apple is about to face serious supply chain problems. In addition, according to Bloomberg news, Apple williPhoneOrders have been cut by 10 million units. Two major investment banks, JP Morgen and Needham, both issued reports worrying that Apple’s iPhone sales and performance would be dragged down by the chip shortage.
Even Apple has been dragged down by the chip shortage, which shows that the current chip shortage problem has reached a very serious level. But how serious is it?
Image source: Bloomberg.
According to Bloomberg, the stocking time of general chips is about 10-15 weeks (above), but it has increased to more than 20 weeks. While for automotive microcontroller chips, the general stocking time is about 6-9 weeks, but the current stocking time is more than 26.5 weeks. Therefore, Tesla CEO Musk has stated on Twitter that the current industry panic is as crazy as looting toilet paper during the epidemic; and a report from Goldman Sachs also stated that 169 industries around the world are affected by the lack of cores. Even the production of soap has been affected.
However, why has such a large-scale chip shortage suddenly appeared?
Although a series of accidental factors lead to chip shortage, in fact chip shortage is caused by cycles;
The characteristics of the semiconductor industry force the industry to accurately predict future demand in order to ensure the normal supply of chips;
New technological developments such as the Internet of Things make it increasingly difficult for the industry to predict future demand;
The large-scale tangible hands not only disrupt the self-regulation of the industry, but also further expand the volatility;
In the future, the problem of chip supply will only become more and more serious, and the development of the global technology industry will also be more difficult to predict.
Chip shortage: Is everything really just an accident?
Initially, many people attributed the chip shortage to various accidents, including the trade war, the global new crown epidemic, and a series of natural and man-made disasters (such as the fire in the Renesas plant, the blackout in Texas, and the drought in Taiwan, China). However, even though we have pushed the chip shortage problem above luck, the global technology industry also has various improprieties in dealing with the above-mentioned incidents. Therefore, James Lewis, Senior Vice President and Director of Strategic Technology Projects, Center for Strategic and International Studies (CSIS), once stated:
Bad decisions, bad luck, and increased demand, all three add up, and then there is a shortage of chips.
However, among various accidents, the new crown epidemic is often regarded as the most important factor. It is true that the global epidemic will begin to break out in 2020, and many regions have entered a state of lockdown, which not only affects the domestic consumer market, but also affects the operation of the global supply chain. Therefore, many companies have lowered their sales forecasts and reduced orders. Unexpectedly, the impact of the epidemic on the consumer market is less than expected, and governments of various countries have launched various rescue plans for the epidemic, which has stimulated demand growth.
Image source: Fusion Worldwide.
According to internal sources from the automotive tier-one supplier Continental, when they planned for 2020 at the beginning of last year based on the sharp decline in car sales data at that time and the corresponding reduction in demand from car manufacturers. At this time, due to the surge in demand for a large number of online offices triggered by the epidemic, global personal shipments did not fall but increased. As a result, chip suppliers reduced their car chip production schedules and shifted their production capacity tocell phone, Computers, these high-use consumer electronics fields.
Then the auto market rebounded rapidly in the second half of 2020, and auto companies had to suddenly increase chip orders, which caught the upstream supply chain by surprise.
But at the same time, the shutdown in Texas in the United States in February caused a certain impact on the production capacity of the important automotive chip supplier Texas Instruments (TI); then in March, the Japanese automotive chip manufacturer Renesas (Renesas) plant fires, followed by Taiwan’s successive major power outages and even major droughts have further affected chip production.
According to IHS data, the actual demand for semiconductors in the automotive industry in 2020 is about 15% behind the estimate before the epidemic. Under the severe gap, many auto companies have to temporarily suspend or reduce production. After all, the automobile industry is the core of heavy industries in Europe and the United States, and the news of the shutdown has made governments palpitate. Therefore, according to the news, European and American governments have stepped up to put pressure on chip manufacturers, successfully forcing chip manufacturers to give priority to car chips. However, this has also opened the “Pandora’s Box”, spreading chip shortages to other industries that are already very tight in supply.
Is the chip shortage encountered by the global industry really caused by such a series of accidental events? It is true that many of the above-mentioned incidents can only bring about a short-term impact of about a quarter; even if the incident is as serious as the new crown pneumonia epidemic, the European and American governments have eased the blockade and various loose economic policies, which have been greatly relieved.
That being the case, why are many people in the industry crying for chips? whyIntelThe new CEO also said that the chip shortage will be resolved in at least two years?
The crisis has long been lurking in the semiconductor industry
It is true that many analysts in the semiconductor industry have long pointed out that the current chip shortage is largely an inevitable result. Sheng Linghai, vice president of research at Gartner, said in an interview with the media that the semiconductor industry has always had a cycle every two to three years, and it is currently in a stage of short supply, so the current chip shortage is actually a normal phenomenon. And Koray Köse, an analyst from Gartner, also said: The epidemic is actually just the last drop in the bucket (just the last drop in the bucket).
On average, every three years in the chip industry, there will be a year-on-year surge in cyclical demand (purple line chart). Image source: Kearney.
Why does the semiconductor industry have a three-year cycle (above)? Can global technology companies do nothing but wait for the end of the cycle? To understand the key to the problem, we must start with the characteristics of the supply chain operation and explore what is the semiconductor cycle where it comes from.
In fact, the profit of the supply chain comes from production capacity, and the maximum production capacity of the supply chain depends on the scale of the production line of the supply chain. The scale of the production line of the supply chain is derived from the company’s early investment in machinery and workshops. In other words, as long as the supply chain is willing to spend more money to invest in production equipment in the early stage, production capacity can easily rise. However, in the event of a sharp drop in product demand, even if the semiconductor industry reduces production capacity at this time, the upfront investment that has been spent cannot be recovered, which will seriously affect the profitability of the supply chain.
The above is now even more obvious in the semiconductor industry. After all, chips require high technology and must use top-notch production equipment, so a huge upfront investment is required. Take SMIC as an example. Their status in the semiconductor industry is far inferior to TSMC,SamsungOr Intel; but according to reports, they will build a new fab in 2019, and the total investment is still as high as 12 billion U.S. dollars. Imagine that if SMIC is unable to squeeze out the production capacity of this production line, huge investment may be wiped out.
It can be seen that the capacity utilization rate is the lifeline of the chip foundry: if the capacity utilization rate is too high, the revenue cannot be maximized; if the capacity utilization rate is too low, the profit cannot be maximized. Therefore, in the last 10 years, most of the wafer fabs that produce chips have a production capacity of more than 80% for a long time, so chip foundries often lack sufficient reserve capacity and can increase production in a short period of time. In the event of a chip shortage, these chip foundries must again invest a large amount of upfront capital to build a brand new production line.
The problem is that the chip production line is highly technology-intensive, so it still takes a lot of time to rebuild such a production line. According to the China Semiconductor Industry Association, it takes one to two years to build a large wafer fab, and it will never be possible to meet the sudden demand for chips in a short period of time.
Because there is a considerable time lag between the decision to increase production and the shipment of chips; the technology industry cannot adjust chip demand in real time according to the current operating environment; they can only predict future market trends and advance by about a year. , Put forward demand to the semiconductor industry. But after all, human beings cannot accurately predict the future. When the industry predicts that the supply of chips becomes tight, they will rush to add orders; but the additional orders cannot immediately meet the demand. On the contrary, when the shipment is only one to two years later, the chip production capacity is limited. Will ironically become surplus.
This is the origin of the so-called “three-year cycle” in the semiconductor industry.
The real source of the problem: chip demand is becoming more and more difficult to predict
Since the semiconductor industry has a surplus/insufficiency of chips every three years, why this chip shortage has caused the global industry to cry, even the supply chain master Apple is not immune? The crux of the problem is that the development of the global technology industry has become increasingly elusive, and the industry can no longer accurately predict future demand.
Just now Odin mentioned that the technology industry can only predict the chip demand in the next few years through future technology trends. The accuracy of this prediction will determine the level of chip supply in the next few years. In the past ten years, even fools have known that mobile computing is a major trend in global technology; therefore, the technology industry only needs to follow the path of Moore’s Law, pursue the most advanced manufacturing process, and develop chips with higher performance and lower power consumption. Everyone will rush to buy, and you can make money even if you lie down.
But starting in 2019, the situation is completely different. The key is that after 5G began to spread, it has brought new intelligent technologies such as artificial intelligence, big data, cloud computing, and the Internet of Things, forming a new digital society.
In the past, only mobile phones and computers needed chips, but when we enter the digital society, not only cars need chips, smart factories need chips, and farms also need chips. Therefore, the entire industry expects that the digital society will inevitably drive more chip demand. But what the industry did not expect is that the digital society has not yet arrived: AR/VR is still a picture cake, the development of smart factories is slow, and smart homes are regarded as pseudo-needs. Some people in the industry even stated that there are only 11 billion IoT devices in the world up to now, which is only 22% of the original expectation.
However, although the digital society has not yet arrived, the industry has to follow up with new development trends.
Obviously, consumers always say that 5G is useless, but after all, according to data from the Institute of Information and Communications Technology, China’s 5G mobile phone sales accounted for as much as 70%; it can be seen that 5G mobile phones are no longer useful, but consumers are only willing to buy 5G mobile phones. Similarly, consumers are always worried about the lack of endurance of electric vehicles, but according to the news, electric vehicles sold happily in the first half of 2021, increasing by 160% year-on-year in the top car market, accounting for a share of the global car market’s sales. 26%.
Although the sales of automotive chips are far lower than expected due to the lack of cores, the sales of other chips are still higher than expected before the epidemic. Image source: McKinsey, translation: Tiger Sniff.
The entire science and technology industry knows that the digital society is the future, but these technologies are too new. The industry does not have enough experience and data to accurately predict the development speed of these new technologies; coupled with the interference of the new crown epidemic, the estimation time is even worse. Prone to errors.
As a result, the vast majority of the technology industry last year underestimated the growth in demand for related chips (above).
Taking personal computers as an example, Xu He, chief transformation officer of Lenovo’s global supply chain, once revealed that after the outbreak, the public was still pessimistic about the market, but they later discovered that fragmented demand continued to emerge, so they had to adjust the supply chain quickly. In fact, the technology industry at that time underestimated the potential of remote office and online teaching. Unexpectedly, personal computers played an important role during the epidemic. As a result, sales increased instead of falling, and recorded rapid growth of 10.4% and 32% year-on-year (Gartner Data), far beyond the original expectations of the computer industry.
However, the real difficulty faced by the semiconductor industry is that the digital society is forcing them to reverse collectively.
Digital society disrupts the deployment of the semiconductor industry
Today, when the media mentions the chip war, they often think that it is a war of various high-end 5nm, EUV, FinFET and other top advanced process technologies; industries are vying to develop nano-scale processes that are smaller than the new crown pneumonia virus. However, the chip shortage we are currently facing is not so high-tech. In fact, the real hardest hit areas for the current chip shortage are those basic chips above 90nm and relatively backward process technology; and the production lines for producing these basic chips also use relatively backward 8-inch wafer production equipment.
In recent years, the global technology industry has been developing towards mobile, pursuing lower power consumption but higher performance mobile phones and computer chips; in order to pursue higher profits, chip manufacturers have developed larger-diameter wafer production technologies. Therefore, most of the top advanced process chips so far have adopted the most advanced 12-inch wafer production lines, and these old 8-inch wafer production lines have been eliminated; the 8-inch wafer fabs that have not yet been eliminated are only used to produce relatively Lagging mature process chips.
Unexpectedly, the rise of the concept of a digital society, but for the chip industry, which is constantly pursuing advanced manufacturing processes, stepped heavily on the brakes; the chip industry was too late to brake and was directly thrown away by this era.
Although cloud computing servers require chips with high computing capabilities, the performance requirements for terminal devices are greatly reduced. Although smart homes make home appliances more intelligent, the chips used in home appliances are often basic chips that do not require high process requirements, such as analog chips, sensor chips, and camera photosensitive components. At this time, the technology industry discovered that the digital society has indeed driven the demand for chips, but these chips do not need too high performance, nor do they need the most advanced advanced manufacturing process. Old 8-inch wafer production can meet the demand ( Above).
However, it was too late.
When the entire industry found that the demand for 8-inch wafers had soared, they were at a loss as they had already eliminated these old production lines. Since 2016, the entire semiconductor industry has been studying how to increase the production capacity of 8-inch wafers; but until the eve of the outbreak of the new crown epidemic, the old-style 8-inch wafer production capacity has not been resolved. After all, according to research conducted by Orient Securities, there are not many second-hand equipment capable of producing 8-inch wafers on the market, and the room for increasing production is very limited.
As a result, the vast majority of the auto industry that is crying the worst in the chip shortage is the lack of chips produced by 8-inch wafers; even the most advanced Apple iPhone supply chain is not immune. In fact, the iPhone has switched to 5G, and 5G phones require more power management chips than 4G phones, and these power management chips are also from 8-inch wafers, so they are also threatened by insufficient 8-inch wafer production capacity. .
In the long run, companies will eventually have to transfer old chips to more advanced 12-inch wafers; but although 8-inch wafers are no longer the future of the technology industry, at present, 8-inch wafers have a huge The cost advantage is still the “now” of IoT chips. It can be seen that although new technologies have brought new chip requirements, this bizarre demand completely exceeded the expectations of the entire semiconductor industry and disrupted their deployment for two decades.
A ban has destroyed the self-regulation mechanism of the industry
Although the semiconductor industry has been suffering from insufficient capacity for 8-inch wafers, they have managed to cope with it through continuous adjustment of production plans over the years. Unexpectedly, the ban imposed by former US President Trump not only put China’s semiconductor industry in a difficult situation, but also disrupted the industry’s self-regulation mechanism.
Kearney, a well-known American consulting agency, previously issued a warning in the report:
The semiconductor value chain is the most complex and decentralized value chain in the world… But under the current tension between the East and the West, our globalization pattern is disappearing. To accurately calculate the relationship between supply and demand in the future, the industry must consider the following complex relationships:
The differentiation and isolation of global semiconductor demand: At present, the Chinese market consumes more than 50% of semiconductor products, but when the global situation becomes tense, many semiconductor manufacturers may lose the Chinese market. The cross-regional smoothing effect no longer exists (note: the Chinese market will digest excess chip production capacity), and the industry will be more susceptible to impacts in terms of demand in the future.
The self-sufficiency strategy of various countries will lead to a break in the semiconductor supply chain: the current geopolitical situation forces the semiconductor industry to change from global cooperation to the pursuit of self-sufficiency… This not only makes it difficult for the industry to take advantage of the comparative advantages of different countries, but also In pursuit of better production efficiency and cost-effectiveness, when the demand is up cycle, the shortage of supply will become more serious.
There is no doubt that the United States has an absolute leading position in the semiconductor industry, although China cannot achieve self-sufficiency in a short period of time; this does not mean that the United States’ technology industry does not require China’s support. Although every country hopes to achieve self-research and self-sufficiency in semiconductors without relying on others; but semiconductors are an overly large industry, and no country participating in it can stand alone.
In fact, because the United States restricts China’s access to the most advanced chip production equipment, Chinese semiconductor manufacturers have had to work hard in recent years to purchase second-hand 8-inch wafer equipment that other industries don’t need. However, due to China’s vigorous development of the semiconductor industry in recent years, according to Nikkei News, nearly 90% of used equipment has been shipped to China. The price of second-hand 8-inch wafer production equipment has soared, causing other countries to increase production of 8-inch wafers. It’s not easy.
As Odin mentioned earlier, the hardest hit area for the current chip shortage is 8-inch wafers; however, even if countries are stepping up their efforts to increase 8-inch wafer production capacity, because the market can produce few 8-inch wafer production lines, the room for increasing production is very limited. Unexpectedly, China’s semiconductor industry is relatively backward, and instead retains a large amount of old-style 8-inch wafer production capacity.
China is the only region that has seen rapid growth in 8-inch wafer production capacity in recent years. Image source: SEMI via Applied Materials.
According to a report from the International Semiconductor Industry Association (SEMI), the 8-inch wafer production capacity in Mainland China will account for 18% of the global 8-inch wafer market by the end of 2021, making it the world’s largest 8-inch wafer producer. Of course, 18% of the global production capacity is not enough to control the entire market, not to mention that the world’s largest 8-inch wafer manufacturer is still Taiwan Semiconductor Manufacturing Co., Ltd. of China.
However, China’s current 8-inch wafer production capacity has a huge effect on venting the current chip shortage. Reuters reported earlier that because of US sanctions, an automaker tried to transfer chip production from SMIC to TSMC, which resulted in an explosion of orders at TSMC. Some supplier executives once told Reuters that they found an alternative that would make us not rely on TSMC, but in the end they found that alternative wafer manufacturers did not have available capacity.
Fear of sanctions expands the volatility of the semiconductor cycle
The irony is that the original purpose of various US sanctions was to maintain the leading position of the US semiconductor industry. However, I did not expect that such sanctions would destroy the cooperation mechanism that the semiconductor industry relies on to adjust production capacity, causing the supply-side self-regulation mechanism to fail to operate. .
But what is even more ironic is that China’s demand for chips could have adjusted the cyclical amplitude of semiconductor demand, but the sanctions imposed by the United States have amplified the cyclical amplitude of semiconductors and further plunged the entire industry into a state of instability.
In fact, China’s technology industry has developed rapidly in recent years, and the demand for semiconductors has also increased rapidly. According to statistics, China has accounted for 53% of global purchases in 2019 (pictured below); it can be seen that even if the semiconductor industry does have overcapacity, the fast-growing Chinese technology industry can still eat all the excess capacity. .
Proportion of global semiconductor purchases. China (red) already accounted for more than half of the global share in 2019. Image source: Semiconductor Digest.
In fact, in recent years, China’s technology industry has developed rapidly, and the demand for semiconductors has also risen rapidly. According to statistics, China has accounted for 53% of global purchases in 2019 (above); even if the semiconductor industry really has overcapacity, China’s technology industry, which has entered a period of rapid growth, can digest the excess capacity and reduce the semiconductor industry. The price has stabilized.
However, since 2019, the United States has imposed sanctions on Chinese technology companies many times, making each company a panic.HuaweiRotating chairman Xu Zhijun once said that although Chinese companies had been pursuing zero inventory, many Chinese technology companies had to substantially increase chip inventory under the panic of sanctions, and some companies had inventory levels for more than half a year.
China’s semiconductor demand currently accounts for more than half of the global market; however, according to China’s customs data, China’s semiconductor imports last year soared 15% under the pressure of sanctions. How much burden has the US sanctions added to the current semiconductor industry? It is conceivable.
Of course, if Chinese companies increase chip inventory, leading to soaring chip prices; this is not necessarily a bad thing for the semiconductor industry. After all, it is reported that the semiconductor industry such as TSMC and Samsung has set new sales records this year due to a sharp increase in prices due to chip shortages. The problem is that on the opposite side of the increase in chip inventory, it also represents the future demand for chips, which may be drastically reduced because Chinese companies need to clear their inventories. The semiconductor industry is likely to have to face the dilemma of overcapacity of chips.
After all, chips are high-tech products and are highly time-sensitive. It is impossible for China’s technology industry to store it for a long time. Therefore, this large number of stock chips will eventually have to be digested in the short term; this will cause China’s chip demand to drop sharply in the next one to two years. However, at the same time, the semiconductor industries of various countries continue to increase their production capacity under the pressure of the European and American governments, but the newly added capacity can only be launched on the market after a year. At this time, it is very likely that Chinese companies will clear inventory and lead to chip production capacity. The surplus puts huge downward pressure on semiconductor prices.
Therefore, although the current global chip shortage is still very serious, according to EE Times, many analysis institutions are worried about the overcapacity of semiconductors. Morgan Stanley, a well-known American investment bank, issued a report “Winter is Coming” earlier, pointing out that the chip industry is entering the later stage of the cycle and will face a difficult pricing environment next year. As soon as this report came out, the stock price of American semiconductor companies fell sharply.
It can be seen that the Chinese market, which could have served as a modulation mechanism for the semiconductor industry, has expanded the volatility of the semiconductor industry under the interference of geopolitics, not only leading to a serious chip shortage today, but also a serious overcapacity in the future.
The future of the semiconductor industry is becoming more and more difficult to predict
Since it is said that the semiconductor industry will face overcapacity, when will the current global chip shortage end?
No one can know.
In August 2021, industry leaders including NVIDIA’s Huang Renxun and Intel’s Pat Gelsinger were also optimistic that the chip shortage would be resolved in 2022; but in October, the industry began to turn pessimistic, and Pat Gelsinger changed his tone. , Believes that the chip shortage will not be resolved until 2023 at least, and IBM’s Arvind Krishna even stated that it may last until 2024.
Why does the industry change from optimism to pessimism? Because the future of the semiconductor industry has become increasingly unpredictable.
After multiple mutations, the new crown virus is still arrogant in countries around the world. 8-inch production capacity may not be resolved in the short term, and energy problems of varying degrees are also occurring in various parts of the world. But the above-mentioned problems are only accidental. In the final analysis, the digital society is a major trend in technological development, but this major trend has completely disrupted the deployment of the global semiconductor industry. The far-reaching impact of science and technology on human life will inevitably lead to tensions between the two major scientific and technological forces in China and the United States, and further undermine the regulation mechanism of the technology industry.
If China and the United States cannot cooperate with each other to adapt the technology industry to the new needs of the digital society, it will be impossible for the semiconductor chaos to be improved, and the future of the semiconductor industry will become increasingly difficult to see through.