Why the shortage of chips ended so suddenly - and why it doesn't help the auto industry

Suddenly they are available again: Amazon sold current GeForce graphics cards on Prime Day on a special offer, 50 euros below the manufacturer's recommended price.

Why the shortage of chips ended so suddenly - and why it doesn't help the auto industry

Suddenly they are available again: Amazon sold current GeForce graphics cards on Prime Day on a special offer, 50 euros below the manufacturer's recommended price. A few weeks ago, these PC components cost twice as much.

The online retailer Mindfactory is currently offering AMD's Ryzen chips well below the recommended price, and the price comparison portal Idealo, which like WELT belongs to Axel Springer SE, lists Sony's Playstation 5 games console as easily available again - this was unthinkable in the spring. Is the chip supply crisis suddenly over now, contrary to all forecasts that predicted a global bottleneck at least until 2023?

At least in Taiwan, the signs are suddenly completely different than they were in the spring. Because the big brand manufacturers of laptops, smartphones and PC components as well as their contract manufacturers in Asia are currently apparently surprised by a sudden slump in private demand. The most important contract manufacturer for high-end chips is Taiwan's TSMC, where Apple, Nvidia and AMD have their processors manufactured.

At the beginning of July, according to the trade journal "Digitimes", major customers suddenly wanted to reduce their orders from TSMC - Apple is said to have reduced its first order of chips for the iPhone 14 by ten percent, Nvidia wants its next-generation chips to come onto the market more slowly throw than planned.

TSMC suddenly has production capacity free again. Investors are concerned about the billions the company is investing in building the next generation of chip factories, with TSMC's share price down more than 30 percent from its January high.

Analysts from industry service Gartner published a new forecast for global demand for PCs, mobile phones and laptops last week. Accordingly, sales should fall by more than seven percent by the end of the year.

In Europe in particular, consumers are suddenly stepping on the brakes, driven by uncertainties caused by the Ukraine war, rapidly rising prices and delivery problems due to lockdowns in China. In China itself, the electronics industry is under much greater pressure, and the smartphone market is expected to decline by up to 20 percent.

“The sudden slump surprised the chip manufacturers, who are currently investing billions in new factories,” Gartner analyst Alan Priestley comments on the new forecast in the WELT interview: “Intel, for example, is currently investing heavily and would like to establish itself as a contract manufacturer.”

The US manufacturer is building several new factories at the same time, at a price of up to 17 billion dollars per "Fab". The declared strategy of Pat Gelsinger, who took office in 2021, is to compete with TSMC and Samsung in the contract manufacturing business. Intel's Fab34 is nearing completion in Leixslip, Ireland, with production scheduled to start in 2023. In Kiryat Gat in Israel, Intel is planning to launch two new plants, Fabs 28 and 38, in the next two years.

The industry's problem is the long lead times for new plants: The construction of Fab 34 in Leixslip, for example, began in 2019. The group's strategists could not have foreseen that the PC market would collapse just at the time of completion.

Intel is planning a factory in Magdeburg that will probably not be able to deliver the first chips until 2027. Nobody can say exactly how the chip economy will run until then. In view of the high risk associated with the billions in investments, manufacturers are currently relying on government help: governments worldwide have discovered chip factories within their own borders as crucial building blocks in trade conflicts - and they are all trying to convince manufacturers to invest locally.

With its new “European Chip Law”, the EU wants to mobilize 43 billion euros in subsidies for the industry. South Korea currently pays the equivalent of over 37 billion euros in chip investment subsidies, and the USA is planning a new semiconductor law called "CHIPS Act" that could bring manufacturers a total of over 50 billion dollars in subsidies.

But in the USA, the mood is tilting against the chip law in view of the collapsing economy: Democrats and Republicans have been arguing for months about the exact structure - and Intel's competitors are currently warning behind the scenes that the law could bring unfair advantages to the US market leader. The impending economic downturn is intensifying competition.

The long lead times for new plants are the source of yet another industry problem - and that means many of the chipmaker's customers will continue to be short of supply, despite spare capacity in the newest plants.

"Chips are not just chips, and chip factories are not just chip factories," said Gartner analyst Priestley. "The automotive industry in particular will continue to suffer from supply bottlenecks for a long time, and manufacturers of electronic devices will also find it difficult or impossible to get certain types of chips."

Because most devices don't even need the chips of the latest generation that can be manufactured in the new factories of Intel and Co. "A new generation of cars, for example, takes up to ten years to design - and their electronics are designed using the chips that are available at the time of design." were current.

"However, production capacities for these older chips cannot easily be adjusted today," explains Pristley. "No manufacturer now invests in a factory with ten-year-old manufacturing processes, which then starts production after another four years of construction."

And even if a manufacturer were to take this step driven by subsidies, it wouldn't be able to. "The tools and machines required for this, for example for the small 200 millimeter silicon disks that were common at the time, are no longer manufactured."

From the point of view of the industry, the solution is therefore to switch to the next generation of chips as quickly as possible. The German electronics supplier Bosch, for example, is consistently converting control units and power electronics for the automotive industry to chips based on new standards.

This is risky, but since Bosch is driving the development of car technology itself, the company can dare to build new plants. In mid-July, Bosch boss Stefan Hartung announced further billion-euro investments in his new chip factory in Dresden by 2026. “We have been producing on 300-millimeter wafers here in Dresden for a year. Hard to believe, but true: This new chip factory is the first in 300 millimeter technology to be built in Europe since 1999.”

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