Why is there such a “chip shortage” in 2021?

The “chip shortage” spreads to the consumer electronics industry. Why is there such a “chip shortage” in 2021? 

Since the end of last year, due to insufficient chip output, the world’s most important brands and semiconductor factories have been under pressure from stock shortages for computers, mobile phones, home appliances, and game products. The problem of chip shortage has spread from the automotive sector to the notebook computer, game console industry and smart phone sectors. Due to the price increase of chips, the wholesale price has also risen by 25%, and its market supply is bound to decrease relatively.

How serious is the shortage of chips? 

Just this year, executives from Apple and Xiaomi have revealed the news of tight chip supply. Luca Maestri, the financial officer of Apple’s mobile phone, said: Due to supply chain constraints, two high-end products in the iPhone 12 Pro series will be subject to production restrictions. And Lu Weibing, head of Xiaomi’s Redmi brand, also said on Weibo: “The chip is too short this year. It’s not a shortage, it’s an extremely lack.” As the president of Xiaomi China, it is not difficult to say that to a certain extent. The shortage of chips this year is evident.

The chip mentioned here does not only refer to the main chip of the mobile phone, but a variety of chips such as chips, radio frequency chips, power control chips, and Bluetooth chips are also used in mobile phones. And these chips all have a certain degree of shortage at the moment. Without one of them, the mobile phone cannot complete the normal assembly and production.

A source in the mobile phone supply chain said: At present, the delivery time of all Qualcomm’s materials has been extended to more than 30 weeks, and the delivery cycle of CSR Bluetooth audio chips has reached more than 33 weeks. 33 weeks means a delivery period of more than 8 months.

Why is there a shortage of chips?

• We know that the production of chips requires some basic raw materials, such as copper, aluminum, gold and some plastics. The price increase of these basic raw materials gradually stretched the cost of chips. When manufacturing the chip wafer, when it is packaged and produced, it is necessary to connect the solder feet of the wafer to the pins outside the chip body through gold or copper wires, and then encapsulate it with epoxy resin and other plastics. Manufactured into a functionally intact chip.

• The new crown virus that broke out at the beginning of last year is one of the main reasons for the shortage of chips. Since 2020, affected by the new crown epidemic, countries around the world have adopted remote office and remote classes to avoid public contact, which has led to a significant increase in the demand for notebooks and tablets. In the second quarter of 2020, when the epidemic broke out, global notebook computer shipments soared 73.49% year-on-year. 2020 is the hottest year for anti-epidemic products. Forehead guns, blood oximeters, thermometers, blood pressure monitors, thermometers, etc., the hot sales of these electronic products will increase the demand for chips.

• To make a chip requires more than 2,000 processes, which is very complicated, so no country can achieve independent production of chips, so when a problem occurs in a certain link, it is often a chain reaction
• On the other hand, with the popularization of 5G networks, the concept of “Internet of Things” is on fire. The fields of medical treatment, industry, communication, home furnishing, etc. have begun to accelerate intelligence and networking. The resulting demand also squeezed part of the chip production capacity.

• By 2021, the degree of damage from the global new crown epidemic will be reduced, when people hope that the chip problem will be alleviated. Nature is joking again. First, Japan suffered a 7.3 magnitude earthquake, and semiconductor factories such as Toshiba and Fujitsu were damaged.
• After that, Texas was hit by a rare snowstorm, and several semiconductor manufacturing plants were shut down. This includes two Samsung semiconductor factories. According to data, these two factories account for about 28% of Samsung’s total chip production capacity. This makes the already tight chip supply even worse.

Uncertainty brought by chip shortages and price increases has led to panic hoarding of goods in the market, and orders in various links have surged.

How long will the lack of chips last?

The strong demand is a “sweet pain” for the entire semiconductor industry, because it is not easy to expand the scale in a short time. As we all know, chip manufacturing is one of the most complex manufacturing processes, and the investment is huge. According to industry sources, the investment in the two latest 12-inch wafer fabs is equivalent to a “Three Gorges Dam” project.

Neither TSMC nor Samsung can quickly expand the chip production line. Because every process and every link required for chip manufacturing must have high-end equipment that only a few companies in the world can produce, engineers with ultra-high skill levels must participate in production, and billions of dollars of investment must be invested. The way to achieve capacity expansion in a short time, and the major chip manufacturers are obviously unable to predict such a large increase in chip demand in advance, TSMC plans to expand the scale. Expansion needs to include various equipment such as lithography machines. The production capacity of ASML’s top lithography machines is only a few dozen units a year (only 26 units were produced in 2019). Plus handling, installation, debugging, plus engineer training. Expansion of production capacity is really not something that can be done in a short while. 

Some analysts believe that it will take at least half a year to alleviate the current supply shortage, and it will even last until around 2022.

The cause of the “core shortage” phenomenon is very complex, and its impact is also multifaceted. In addition to the above, there are some underlying issues that we have to think about.

As of the end of 2019, my country’s chip consumption accounted for 42% of the world’s chip consumption. The self-sufficiency rate of domestic chips is less than 30%, and it costs hundreds of billions of dollars each year.

On the technological track in the next ten years, 5G, Internet of Things, and Internet of Vehicles are all projects that countries are focusing on. Each of these can drive a market size of more than 100 billion U.S. dollars. But the cornerstone of these technological developments is small chips. Independent research and development and mastery of “China Chip” is something that must be done at present.

In this era where semiconductors and chips are inseparable in life, it is foreseeable that this year’s chip shortage may affect the price of semiconductor products in two to three years, and the price increase of electronic products is also an inevitable trend.