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Author Topic: Chip shortage shows no signs of abating, may drag into 2022  (Read 250 times)
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« on: April 07, 2021, 06:16:56 PM »
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Auto manufacturers and other companies are hoping that the global chip shortage will end soon, but snarled semiconductor supply chains may not untangle until next year.

The mess began when the pandemic upended the market for semiconductors. As demand for cars plummeted, automakers slashed their orders. But at the same time, demand for chips that power laptops and data centers skyrocketed. That bifurcation shifted the market, and when car and truck sales rebounded, semiconductor manufacturers rushed to meet demand. Soon, though, shortages of key components emerged. The industry is known for planning—and for its long lead times—so it could take a while for the chip market to sort itself out.

“There seems to be a broad consensus that it will stabilize by the end of the year,” Chris Richard, principal in Deloitte’s supply chain and network operations practice, told Ars. “But if I go back to 2008 and the financial crisis, it was a couple years after the rebound started before everything smoothed out again.”

It’s not just manufacturing capacity that’s hard to come by. Shortages of wafers and packaging substrates are compounding the problem. Those have hit the automotive sector especially hard, Richard added. A drought in Taiwan and a fire at a Japanese fab threaten to add to the industry’s woes.

Many of the chips in shortest supply, including those destined for the automotive sector, are made using older processes. These mature nodes are typically well understood, and many fabs run them near the limits of their capacity, meaning there’s not a lot of slack in the system.

In other industries, shortages like this can be solved more easily—customers can simply place orders with other manufacturers to meet temporary spikes in demand. But automakers are unlikely to dial up a new supplier, since it takes about three to six months, sometimes more, to qualify chips from a new factory. And semiconductor manufacturers are unlikely to build new fabs to meet what might prove to be temporary surges in demand. In the end, the best bet for both sides is to push for more production at existing fabs.

“A scramble”

Chip manufacturers have responded by ramping up production on their existing lines where they can, but that’s difficult in fabs that are already running above 90 percent capacity. To free up more production, they’re trying to tweak production rates on existing machines, request early deliveries for tools they’ve already ordered, and squeeze more of those tools into space-constrained factories. “It’s just a big scramble,” Richard said.

For many car companies, chip problems have been made worse by the fact that the companies are often several steps removed from semiconductor manufacturers. Over the years, as cars have incorporated more advanced technologies, automakers have outsourced the production of more and more parts to suppliers. That distant relationship stands in sharp contrast with computer and electronics companies, which often work directly with semiconductor companies. Together, they command about 60 to 70 percent of the chip market, while automotive customers account for less than 10 percent.

The current chip crisis and the trend toward electrification are factors likely to change how car companies interact with semiconductor manufacturers. While today’s fossil fuel-powered vehicles use plenty of chips, electric vehicles promise to use more, especially as advanced driver assistance systems, or ADAS, become more widespread in the coming years. The coincidence of the chip shortage and electrification will change how auto executives view their relationship with semiconductor manufacturers, Richard said. Automakers will likely work much more closely with chip companies in the future, even if the resulting car parts are made by several different suppliers.

Some companies have fared better than others. Toyota, for example, requires suppliers to stockpile two to six months of parts as a buffer against supply chain problems. The company developed the plan in the wake of the Fukushima earthquake in 2011, and it has left the company producing when others have idled some plants.

Other automakers waiting on parts will have to wait a bit more. Making chips is a slow process. Even when manufacturing capacity is in place, it can take up to 26 weeks to produce a chip from the time an order is placed, said Falan Yinug, director of industry statistics and economic policy at the Semiconductor Industry Association. “That’s just the physics of manufacturing chips,” he said. “Good news is coming, but you can’t speed up the process.”

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