How The Global Chip Shortage Started

hi welcome to another episode of cold fusion it's no secret that the world is currently experiencing a shortage of semiconductors you may have heard it on the news seen an article online or perhaps you've tried to purchase a product just to be told that there's going to be a severe delay in shipment or no shipment at all car manufacturers expect to lose out on 110 billion dollars in potential sales this year car companies are shutting down production due to a lack of vital chips ford ceo jim farley says that the semiconductor chip shortage is perhaps the greatest supply shock has ever seen 93 percent of respondents in a new survey of automakers said that they think the chip shortage will have a severe impact on the auto industry the iphone 12 came with month long delays and samsung is considering postponing the launch of their latest galaxy phone so what is going on here how could the world run out of such a vital part of modern society what happens moving forward contrary to popular belief this shortage isn't just caused by the pandemic let's take a look you are watching cold fusion tv [Music] the ways we communicate with each other entertain ourselves learn cook travel heal build and work are all powered by semiconductors for a time these chips were associated mostly with computing but over the past few decades computer chips have become an essential component of every electronic item you own just look around you and think for a second even items that you might not expect like fridges and kettles have become increasingly more complex requiring more chips essentially everything in this world that was made in the last five to ten years that uses power also uses semi-conductors your car light bulb kids toys bathroom scales water filters doorbells even toilets and sanitizer dispensers the list grows daily and it's not just these products even the stuff that makes our stuff require semiconductors every stage of production from designing to planning and manufacturing sale and shipping all require chips by now i think you get the point our reliance on semiconductors is clear according to a survey of manufacturers done by forrester consulting we can see that the industrial machinery and electrical equipment segments are the hardest hit by the chip shortage not far behind are the it hardware and computer sectors ok so why is there a shortage in the first place the world of electronic production is tough and innovation is vital to survival although there are many players in the semiconductor industry who design chips there's only a few who manufacture them intel both designs and manufactures but companies like apple nvidia qualcomm and amd design their own chips but outsource their manufacturing even intel themselves will join them soon taiwan semiconductor manufacturing company or tsmc is the go-to company for manufacturing with a massive 54 global market share as well as the high performance chips required for nvidia and apple products they also produce low end chips found in cars and even microcontroller units this is often referred to as the 200 millimeter wafer class of chips overall you might be seeing a problem here one company makes over half the chips for all the other major companies it's the weakest link in the chain almost everything rests on the shoulders of tsmc this was a supply disaster waiting to happen when the pandemic hit industries around the world were disrupted though different consumers reacted in different ways for example sales of personal electronics rose as people upgraded their home offices so companies like apple and nvidia would make more sales but automotive manufacturers saw a drop and subsequently companies like general motors and volkswagen cancelled or delayed chip orders because they saw a long sale slump coming chip manufacturers then shifted their focus from the auto industry to other areas when sales began to pick up again the auto industry asked them to ramp back up but the thing is it takes months to ramp up silicon production so why so long well these facilities are very delicate operations even a speck of dust can cause massive problems in the manufacturing process of a chip a simple power outage at a chip manufacturing plant will require weeks of careful inspection before everything can be brought back online normally chip manufacturing plants are left to run 24 7 so tsmc and others had to keep their factories running so when car manufacturers cancelled or postponed their orders they thought it was just going to be as simple as flicking back on a switch when the demand returned but instead they were left out in the cold as chip manufacturers sought to accept work from other companies to keep their factories running and now it's going to take months to retool this has led both general motors and ford to temporarily idle their factories in the us meanwhile over in japan a coincidental fire at the renesas plant the number one producer for the japanese automotive sector caused another supply shock over there nissan said that they're going to slash half a million cars from production because of this issue subaru said that it's going to make 48 000 fewer cars so here's a question why can't car and product manufacturers just get their chips from elsewhere if their usual supplier doesn't have the capacity the issue is that there aren't that many chip manufacturers on earth that can build complex components even so it takes six to twelve months to move a design say from tsmc to samsung pc gamers and enthusiasts are struggling to get parts but yet another pressure was high cryptocurrency demand gobbling up even more gpus here to talk about it more is caleb borgstrom he's a subscriber that owns his own mid-sized pc building company here's some of what he's seeing behind the scenes in the pc industry um my name is caleb i've got a company like gaming pcs we sell gaming pcs online for our ecommerce store what we're seeing is just consistent increases almost every single new order we place every week the price continues going up and that's from distributors straight from manufacturers so that's that's not a someone trying to buy and resell and make a profit we're seeing that much of an increased price just on the actual msrp of the item with cryptocurrencies hitting like record highs uh all the miners were avidly searching to pick up as many graphics cards as they can because mining became way more financially feasible than it had been before in my opinion i don't think that the price will directly go back down on these new cards a lot of the higher priced older cards on ebay will but these newer cards we're not going to see a a strong decrease especially because of how much more money is in the market right now uh that's got to end up going somewhere because of all the stimulus checks it has to go somewhere and because these consumer electronics are in such high demand and there's so much extra money in the uh in the economy floating around the inflation is starting to show up in some of the areas that are still in demand right now they got a thousand dollar check and they're like okay well i'm i'm already surviving so what do i do uh and so they would go and buy gaming computers okay so when watching this video you think you might have the full picture but all may not be as it seems as you'll soon see companies may be panic buying and hoarding chips causing a fake surge in demand [Music] take a look at this chart it shows the wait times for different kinds of chips [Music] some components are considerably more bottlenecked than others but clearly the trend is higher cheap relatively low level components have been the hardest to find over the past six months with wait times rising two to three hundred percent in some cases chris roland analyst at susquehanna states quote all major product categories are up considerably these were some of the largest increases since we started tracking data his firm calls the present situation the danger zone that is if the wait time gets any longer buyers may amplify the crisis by hoarding here's an example if you're a computer manufacturer and you know that chips will take longer to arrive you'd want to get as many of those chips as you can as early as possible the same thing goes for car manufacturers if you can't make a fifty thousand dollar car because of a five dollar chip you're going to get a whole bunch of them whether you need them or not by the way that actually happened to general motors as a whole hoarding puts even more strain on the system the problem for foundries like tsmc is that it's very difficult to tell real demand from hoarded products and this could cause a massive overcorrection interestingly we have a case study to examine this very scenario back in 2017 and 2018 automakers faced supply chain strains car makers pressured chip manufacturers to increase production capacity in 2019 the industry realized that demand wasn't as great as first thought now there was a huge glass of chips with no products to put them in renises one of the top automotive chip producers in the world had to halt production and lay off employees and its president stepped down and therein lies the risk for companies like intel tsmc and samsung which have all committed to large foundry expansions if they scale up demand which is overemphasized by hoarding it could expose the semiconductor industry to a nasty correction cycle if demand just isn't there also not helping is the ongoing drought in taiwan where tsmc is based chip production requires a lot of water to clean the wafers that go into many tech devices taiwan is supposed to be one of the rainiest places in the world typhoons are a common occurrence but something strange happened in 2020 no typhoon ever arrived taiwan was suddenly thrust into the worst drought in 56 years in fact one of the primary water sources for taiwan's 100 billion dollar semiconductor industry is only seven percent full and all-time low the government has demanded that tsmc reduce their water consumption by 15 yet another constraint for the key supplier for this whole industry and the world so in summary what we're seeing is not just the pandemic it's the pandemic causing people to work from home getting extra spending money in the form of stimulus checks fires in japan a drought in taiwan hoarding cryptocurrency demand and also more complicated cars that require more silicon per vehicle it's a perfect storm that comes together to bring an industry to its knees and this isn't even to touch on the geopolitical situation that taiwan is in so moving forward analysts predict that the shortage will continue through the year chief financial officer at nvidia colette cress told investors in april quote we expect demand to continue to exceed supply for much of this year these ongoing effects have led world leaders like u.s president joe biden to question how the supply chain got to this point in the first place and can there be anything to ensure that this doesn't happen again in february president biden signed an executive order to authorize a 100-day review into semiconductor supply chains it's probably safe to say that while the road is long a full recovery will be achieved but the way industry leaders have rested the weight of the global economy on the shoulders of one manufacturing plant is something that will come under scrutiny in the coming months tsmc is a vital part of the global supply chain and hence so is taiwan according to the bbc around 90 of the most advanced microchips are manufactured in taiwan so it's clear that there needs to be some kind of backup plan if things go wrong though easier said than done so let's end this episode with a bit of a fun fact in the summer of 1997 tamagotchi digital pets almost brought down the supply chain after they became a smash hit among young people around the world the huge and sudden demand for these little pets took up almost the entire semiconductor capacity of taiwan which triggered shortages and delays that spilled into other sectors so there you go although today's shortage is on a much bigger scale it's interesting to note that this kind of thing is indeed nothing new i got today's topic idea from a suggestion in the cold fusion discord so if you want to suggest videos or just go on there to have a chat links will be in the description we're trying to improve on the community constantly if you like this video and want to see anything more on technology science business or history subscribe to cold fusion to follow my musical creations i've made a second channel that's also linked below anyway that's it from me my name is dagogo and i'll see you again soon for the next episode cheers guys have a good one cold fusion it's me thinking [Music] [Music] you

Channel: ColdFusion

Views: 784,075

Keywords: Coldfusion, TV, Dagogo, Altraide, Technology, Apple, Google, Samsung, Facebook, Tesla

Id: AeN3oQx-o68

Length: 14min 11sec (851 seconds)

Published: Thu Jun 10 2021

Reddit Comments

[u/Silvermoomoo]

Got a new phone recently and a new car. Sold 2 cars to carmax to do it. They were giving away fiat like it was worthless. 🤣🤣🤣

[u/Silvermoomoo]

So should we start buying computer chips too?

[u/NoResponsibility5162]

It wasn't long ago I was doing great without those.