What's really behind the chip shortage and when will it end?
In case you haven't noticed the world runs on microchips.
Not just the elaborate ones you hear that operate your computer or your phone.
But frankly a whole bunch of others.
That operate things like the timer in your coffee pot, or the power windows.
Is in your car, across that gamut, we've heard that there's a chip shortage and you see the outcome of it.
game consoles really hard to find cars stocking up in marshalling yards waiting for final components, because there are no chips to build them.
It's becoming quite a bottleneck.
I have two experts here, colleagues of mine from CNET news who will know we've got Shara tibken and Steven Shanklin, both senior reporters we've seen that and let me start with you, Shara big picture for those who are not following this but are just maybe just now becoming aware of it.
Why is there a chip shortage?
Basically what happened was a year ago people stopped buying pretty much anything unless you needed a laptop for working from home.
So demand just really fell off like crazy.
And now that we're kind of seeing glimmers of the end of the pandemic, demand has come back basically for everything.
People are trying to buy cars.
The car rental companies are trying to buy cars.
People are buying new phones.
You know people are shopping again.
So they want things and they're going out and doing things.
And it's it's been hard for these companies to meet the demand based on what they had available in terms of building.
So what we're seeing is just basically everything right now that uses any sort of electronic is having problems getting the supply, like even a dog washer in the country is having problems getting a very particular chip they need for these like machines to watch dogs So, it's not just really super high tech products, It's almost everything.
Shank, you've written a bit.
You've covered the semiconductor business a lot.
What's it like for these big, elaborate chip factories, the so called Fabs To restart are these difficult things to slow down and relaunch?>>> Yeah, these are gargantuan battleships.
They are not factories that you take offline and then switch back online at a whim, they take years to build.
They are incredibly expensive and cheap one these days cost about $10 billion.
The companies that run these chip factories, they're called fabs.
Intel obviously in the United States is one you probably heard of that actually.
The one that's at the cutting edge right now is in Taiwan, Taiwan semiconductor manufacturing company.
And then the other one of the big three is Samsung.
There are those three big ones but then there also are a lot of little ones that are cutting edge.
And one of the interesting things that happened with this pandemic induced chip shortage is a lot of the products that people needed.
didn't use some cutting edge chip, like the big you know, the main processor in a laptop or a phone, but it's just some little support chip and it might be made on some older in some older fab.
That's still kicking along somewhere.
And those shortages have been enough to trip up much bigger much more powerful, much more glamorous product so it might be that you have the central processor to run your fancy new Macbook but you don't have some little tiny support chip that makes Display work or something like that.
So it's actually been a very complicated shutdown with a lot of moving parts.
And a lot of those big three you mentioned tsmc, Intel and Samsung, they don't all make all the same things.
They all tend to have specialties in chips Is that right?
Intel makes its own chips.
It makes its own CPUs for processors and a lot of other products network chips.> Samsung and TSMC are what are called foundries, which means that they make chips for other companies.
So if you for example are Apple wanting to make its own iPhone chip or Mac chip you go to TSMC and they'll make it for you if your IBM and you're making big mainframes, you go to Samsung and they make a server processor for you So those foundry businesses are sort of a bat is a factory for anybody who needs to buy a chip, until it's actually moving in that direction.
And it's trying to move faster now because it sees this huge expense.
Expansion in demand for chips so this is a good opportunity for Intel to tap into that a good way to grow its business.>> So, Shara has you look at this and have been covering it what do you think is the best street guesstimate for how long the shortage last.
I know it's a shortage of many threads it's a multi-headed hydra but in general is this This year through next year, lingering into 23, what are you hearing?
What we've kind of heard is the kind of high-end processors that that you need for like to power an iPhone or Samsung device that might be fine by the end of this year.
Like there may not be problems with that.
But some of the other areas it could stretch well into next year.
I haven't really seen anybody say 2023 most are kind of saying by like later next year, things should be normal.
But we really just have to see what happens.
You know, as Steven mentioned, it's it's not all just high end ships there shortage.
It's a lot of these like smaller ones that are You know, companies don't want to invest new capacity, they don't want to invest billions of dollars to build older technology.
So for that, it kind of it could take a lot longer to get back to the actual supply that's needed.
Because you're not going to be seeing new billion dollar factories made for those,
As you describe that it sounds a little bit like the antibiotic business where the everyday chip is kind of the everyday sort of amoxicillin No one's too excited about it.
They don't want to build a big expensive fabs here they've just export it all of that.
Is part of what's happened here due to the exporting of the business or is that over reading Li the export of chipmaking.
You know, the biggest chip manufacturers have been tsmc.
So it's in Taiwan and Samsung, which is based in Korea.
Samsung also has a huge facility in [UNKNOWN].
So outsourcing doesn't have a lot to do with it.
Intel has made its own chips here and it has big factories in the United States.
It's not selling as many as it used to, it's It's not supplying to mobile, it's been kind of behind so it's looking to manufacture for other people and it's been a big priority of the Biden administration to fund semiconductor manufacturing and research here, but it's not something that could happen quickly.
These new factories take like 18 months to build, It's as Shanklin mentioned Billions and billions of dollars.
So it's not something that can just be solved overnight and suddenly in the United States is this huge manufacturing Mecca.
You know, there are factories here.
It's just this is affecting everyone everywhere basically.
It's interesting Intel, although it's investing a huge amount in new capacity just announced $20 billion investment for two new fabs, it's building in Arizona.
Those will not come online fast enough to fix this problem.
But it is in talks with car makers to produce some of the chips that they so desperately need right now.
I don't think it's very likely that that.
We'll produce chips, you know, this month or next month but you know, potentially, in by the end of the year, it could actually help.
So although Intel is not able to move fast enough to actually dramatically expand capacity, it could make room for some outside partners.
And that could help ease the shortage a little bit right now the chips are in such high demand.
If you have a little way that you can, you know, make a little Little room in the corner of your fab for some new customer, that customer is going to be extremely grateful and they're going to pay.
Does this create a lot of jobs?
Do a lot of people work in a large fab or is it highly automated,
It is not, 1000s and 1000s of people but it definitely does take a lot of people.
It's highly automated, but there still are hundreds of people who work on it.
Intel for example, just announced a $3.5 billion expansion of a New Mexico found that it's going to invest in.
That is going to mean about a thousand new jobs.
So it's a substantial amount of employment, some of that is up front, construction, but a lot of that is actually operations as well.
So it does take some people, but these are probably the most automated factories there are in the world making the most complicated devices.
There are in the world, the basic technology of making a microchip hasn't changed in decades.
You start with a. Big, circular slice of silicon crystal, and then you use light to etch patterns onto that.
Those patterns turn into circuits, into transistors, into electronic components.
You build it up layer by layer, and you end up with something extraordinarily complicated.
The innovation is in making all those circuits smaller and smaller and smaller every year or two.
Is extremely difficult and that's why these fabs cost more and more to build with each new generation.
I, this is getting a little bit off topic if I asked this but I'm intrigued by this and the story that you recently wrote about Intel's pivot toward becoming a foundry for others as well as itself.
You talk about seven nanometre tech, technology is the cutting edge.
Five nanometre is now on the radar.
Is there a point where we even have to stop measuring in nanometers?
Well, this is actually a funny thing.
So nanometre a nanometers or billionths of a meter and people measure chip electronic feature sizes with this incredibly small dimension.
But the marketing people kind of took over and those numbers don't exactly mean anything anymore.
Mostly just sort of means.
Well right now we're at the 10 nanometre manufacturing node.
Two years from now we'll move to seven nanometers, then we'll move to five nanometers, then we'll shrink down to three nanometers.
It doesn't exactly mean something is that long anymore.
What it does mean is there's steady improvement.
The technology things do miniaturize, but it's kind of a loosey goosey term and we're running out of nanometers, right?
What do we do when we get past two or one?
So I think we're gonna see some changing the names of this, these manufacturing processes.
But what is remarkable is that the miniaturization has continued.
Intel has really struggled here, it lost its lead to TSMC and to Samsung.
It's working to get back on track.
It has a new chief executive Pat Gelsinger, who spent 30 years with the company earlier, went away came back.
He thinks it's going to take a couple years for Intel to catch up.
That's a long time but at the same time, it's also a pretty ambitious schedule for them to recover their progress.
In the meantime, Samsung really has its eyes on becoming the biggest foundry.
So it builds its own ships, it builds, memory chips, a lot of memory chips.
It's the biggest memory chip provider in the world.
It builds its own apps processors and act as the brains and then it manufacturers for you Everyone Qualcomm you know, really important companies.
So, there's the kind of the big three manufacturers all are vying to have the most advanced technology and have the biggest customers who will pay the most money.
And just in case you're wondering, you might have thought the Intel $20 billion investment announcement was a big number.
TSMC announced a $100 billion investment in its capital purchasing in its capital equipment.
And Samsung announced $116 billion.
So these are staggeringly large sums of money.
That's not just over the next year but over the next two, three years.
These plants are incredibly expensive to build, but they also bring in a huge amount of money given that Electronics is spreading into every device, anything that has a power cord pretty much.
What do you think is going to be playing out in terms of how the just in time manufacturing culture works, because that's a lot of what is happening here?
If car makers had been stockpiling more of these chips perhaps financially inefficiently they're probably would be happy right now because they'd be capturing a lot of sales or having to say goodbye to.
It almost reminds me a bit of the failures of stockpiling of PPE early in COVID.
Do you think that there's gonna be a change in the razor sharpness of just in time in the future The auto industry is really, I think unique in that way that they do just in time.
The chip industry in general isn't really just in time.
You know, it takes a very long time to design a processor, to actually manufacture it, to have the supply.
You have to book room basically in the foundry.
Make sure there's enough So it's not like it's not like everybody's doing just in time.
You know, for like a phone, it could take, you know you're placing that order a year or longer out.
It could be, you know, it'll be interesting to see what the automakers do if they adjust to this and decide to hold on to more supply You know, it looks like there's going to be more factories built.
So they may think, hey, we don't really need to do this, you know, because now there's gonna be more capacity.
There's more availability.
I'm not sure how much of a change we're gonna see just in time procurement, but there's definitely going to be some new eyes Cast on the supply chain.
So there are a lot of people who've gotten burned by this.
And actually it wasn't just the pandemic.
There was also a drought problem in Taiwan that hurt tsmc the cold snap in Texas shut down.
Samsung's fab there for more than a month that cost them millions and millions of dollars,
So, right now, I think there's a move to de-risking the supply chain, which is companies are realising that they had a problem here over the last year, and they're gonna do what they can to fix that that might be something where they try to secure second suppliers.
Or they might try to get more inventory, keep more inventory on hand.
It's not clear exactly but, it's pretty clear that people were not happy with how badly the supply chain broke because of the pandemic.
So Shank you recently wrote about how this timing could be fortuitous for certain companies if they wanna play the.
Pull out my pockets.
Woe is me.
I'd sure love to make sure this never happens again.
But to do that I need some federal subsidies.
Is this fortuitous?
Good timing for certain unnamed manufacturers to get some Biden administration support?
I'll name it Intel.
Yes, they're very excited.
It's not just Intel.
So there's a lot of lobbying going on by the high tech industry even including companies like Apple and Google They would like to see more chipmaking in the United States, and that aligns well with the political priorities of the Biden administration.
And actually it goes well, before the Biden administration, there's this idea of the great decoupling, which is the idea that maybe the world businesses are too globally interconnected.
And maybe we should retrench.
So more us manufacturing happens us And maybe Europe is reliant on the US or Asia is reliant on the US different, withdrawal and that's politically popular right now in some circles.
So that's why the bidadoo integration is looking for $50 billion to spend on bringing some of this chipmaking infrastructure into the United States.
That includes Obviously Intel will be the largest likely beneficiary.
But there are other companies that make chips and there are lots of companies that make components of chips or test equipment or some of the very expensive machines that go into a chip fab.
Even if more components are manufactured here that doesn't really solve the global supply chain issue.
Apple's phones are assembled in Asia, Samsung phones, most of them are assembled in Vietnam, it's highly unlikely that these companies are going to actually assemble devices in the United States.
Labor is just too expensive for that.
So even if you're building the components here, you build them here, you have to ship it to Vietnam to be assembled and then you ship it back.
So, you know, it's it would have some jobs for semiconductor manufacturing it, bolster it here, but it's still we're still just in such a very global economy in terms of electronics and where things are.
Manufactured and assembled and it's yeah even manufacturing here does wouldn't completely solve all of these issues.
Shara I want to finish up with an interesting angle that you uncovered and and looked into when you were talking recently with the incoming new CEO at Qualcomm.
And your piece got into how the Huawei blackballing at least by the US may have If I read it right, complicated, or perhaps worsened this current shortage, how does that all work?
So what Huawei is facing is sanctions from the US, basically it can't sell its devices here under the name Huawei, networking, phones, all of that.
So Huawei, on one hand, was trying to buy a lot of components before that all started, so that it could, Still sell the devices that it had.
But then in the meantime, it's it's kind of disappearing from the market for it.
I think one quarter it was the biggest phone vendor, and now it's really dropping.
So all of its rivals like Samsung, Xiaomi all of these other companies are really trying to go after Huawei as demand.
And that means that they're different suppliers for these companies versus for Huawei.
So, you know, now there's just all of this extra demand that there wasn't in the market before, you know, specifically for phone, So these companies like Qualcomm are having to adjust to hey, our customers need more than they did before because Huawei is going away.
So it's just you know, something that's kind of adding more demand on top of what was already a really tight market.
Steven Shanklin and Shara tibken are senior reporters for CNET news.
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