Why shortages of a $1 chip sparked crisis in the global economy – Times of India

To perceive why the $450 billion semiconductor business has lurched into disaster, a useful place to start out is a one-dollar half referred to as a show driver.
Hundreds of various sorts of chips make up the worldwide silicon business, with the flashiest ones from Qualcomm Inc. and Intel Corp. going for $100 apiece to greater than $1,000. Those run highly effective computer systems or the shiny smartphone in your pocket. A show driver is mundane against this: Its sole function is to convey primary directions for illuminating the display in your cellphone, monitor or navigation system.
The hassle for the chip business — and more and more firms past tech, like automakers — is that there aren’t sufficient show drivers to go round. Firms that make them can’t sustain with surging demand so costs are spiking. That’s contributing to quick provides and rising prices for liquid crystal show panels, important parts for making televisions and laptops, in addition to automobiles, airplanes and high-end fridges.
“It’s not like you can just make do. If you have everything else, but you don’t have a display driver, then you can’t build your product,” says Stacy Rasgon, who covers the semiconductor business for Sanford C. Bernstein.
Now the crunch in a handful of such seemingly insignificant components — energy administration chips are additionally briefly provide, for instance — is cascading by way of the worldwide economic system. Automakers like Ford Motor Co., Nissan Motor Co. and Volkswagen AG have already scaled again manufacturing, resulting in estimates for greater than $60 billion in misplaced income for the business this yr.
The state of affairs is more likely to worsen earlier than it will get higher. A uncommon winter storm in Texas knocked out swaths of U.S. manufacturing. A fireplace at a key Japan manufacturing unit will shut the power for a month. Samsung Electronics Co. warned of a “serious imbalance” within the business, whereas Taiwan Semiconductor Manufacturing Co. stated it might probably’t sustain with demand regardless of operating factories at greater than 100% of capability.
“I have never seen anything like this in the past 20 years since our company’s founding,” stated Jordan Wu, co-founder and chief government officer of Himax Technologies Co., a number one provider of show drivers. “Every application is short of chips.”
The chip crunch was born out of an comprehensible miscalculation because the coronavirus pandemic hit final yr. When Covid-19 started spreading from China to the remainder of the world, many firms anticipated individuals would reduce as occasions bought robust.
“I slashed all my projections. I was using the financial crisis as the model,” says Rasgon. “But demand was just really resilient.”
People caught at residence began shopping for know-how — after which saved shopping for. They bought higher computer systems and greater shows so they may work remotely. They bought their youngsters new laptops for distance studying. They scooped up 4K televisions, sport consoles, milk frothers, air fryers and immersion blenders to make life below quarantine extra palatable. The pandemic became an prolonged Black Friday onlinepalooza.
Automakers have been blindsided. They shut factories throughout the lockdown whereas demand crashed as a result of nobody might get to showrooms. They advised suppliers to cease delivery parts, together with the chips which are more and more important for automobiles.
Then late final yr, demand started to choose up. People wished to get out they usually didn’t wish to use public transportation. Automakers reopened factories and went hat in hand to chipmakers like TSMC and Samsung. Their response? Back of the road. They couldn’t make chips quick sufficient for his or her still-loyal clients.
A yr of poor planning led to carmakers’ large chip scarcity
Himax’s Jordan Wu is in the midst of the tech business’s tempest. On a latest March morning, the bespectacled 61-year-old agreed to fulfill at his Taipei workplace to debate the shortages and why they’re so difficult to resolve. He was keen sufficient to speak that interview was scheduled for a similar morning Bloomberg News requested it, with two of his workers becoming a member of in particular person and one other two dialing in by cellphone. He wore a masks all through the interview, talking rigorously and articulately.
Wu based Himax in 2001 together with his brother Biing-seng, now the corporate’s chairman. They began out making driver ICs (for built-in circuits), as they’re recognized within the business, for pocket book computer systems and screens. They went public in 2006 and grew with the pc business, increasing into smartphones, tablets and contact screens. Their chips at the moment are utilized in scores of merchandise, from telephones and televisions to vehicles.
Wu defined that he can’t make extra show drivers by pushing his workforce tougher. Himax designs show drivers after which has them manufactured at a foundry like TSMC or United Microelectronics Corp. His chips are made on what’s artfully referred to as “mature node” know-how, gear no less than a pair generations behind the cutting-edge processes. These machines etch traces in silicon at a width of 16 nanometers or extra, in contrast with 5 nanometers for high-end chips.?
The chip’s makers have seen their shares soar with robust demand
The bottleneck is that these mature chip-making traces are operating flat out. Wu says the pandemic drove such robust demand that manufacturing companions can’t make sufficient show drivers for all of the panels that go into computer systems, televisions and sport consoles — plus all the brand new merchandise that firms are placing screens into, like fridges, good thermometers and car-entertainment methods.
There’s been a specific squeeze in driver ICs for automotive methods as a result of they’re often made on 8-inch silicon wafers, moderately than extra superior 12-inch wafers. Sumco Corp., one of many main wafer producers, reported manufacturing capability for 8-inch gear traces was about 5,000 wafers a month in 2020 — lower than it was in 2017.
No one is constructing extra mature-node manufacturing traces as a result of it doesn’t make financial sense. The present traces are totally depreciated and fine-tuned for nearly excellent yields, that means primary show drivers could be made for lower than a greenback and extra superior variations for not rather more. Buying new gear and beginning off at decrease yields would imply a lot larger bills.
“Building new capacity is too expensive,” Wu says. Peers like Novatek Microelectronics Corp., additionally based mostly in Taiwan, have the identical constraints.
That shortfall is exhibiting up in a spike in LCD costs. A 50-inch LCD panel for televisions doubled in value between January 2020 and this March. Bloomberg Intelligence’s Matthew Kanterman initiatives that LCD costs will preserve rising no less than till the third quarter. There is a “a dire shortage” of show driver chips, he stated.
LCD Prices Are Surging
Aggravating the state of affairs is a scarcity of glass. Major glass makers reported accidents at their manufacturing websites, together with a blackout at a Nippon Electric Glass Co.’s manufacturing unit in December and an explosion at AGC Fine Techno Korea’s manufacturing unit in January. Production will probably stay constrained no less than by way of summer season this yr, show consultancy DSCC Co-founder Yoshio Tamura stated.
On April 1, I-O Data Device Inc., a significant Japanese pc peripherals maker, raised the value of their 26 LCD screens by 5,000 yen on common, the largest improve since they started promoting the screens twenty years in the past. A spokeswoman stated the corporate can’t make any revenue with out the will increase because of rising prices for parts.
All of this has been a boon to Himax’s enterprise. Sales are surging and its inventory value has tripled since November.
But the CEO isn’t celebrating. His complete enterprise is constructed round giving clients what they need, so his incapacity to fulfill their requests at such a essential time is irritating. He doesn’t anticipate the crunch, particularly for automotive parts, to finish any time quickly.
“We have not reached a position where we can see the light at the end of tunnel yet,” Wu stated.

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