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To understand why the $ 450 billion semiconductor industry is in crisis, a handy starting point is a one dollar piece called a display driver.
The global silicon industry is made up of hundreds of different types of chips, the most flashy of which Qualcomm Inc. and Intel Corp. goes for $ 100 each to over $ 1,000. They run on powerful computers or the shiny smartphone in your pocket. A display driver chip, on the other hand, is mundane: its sole purpose is to convey basic instructions for illuminating the screen of your phone, monitor, or navigation system.
The problem for the chip industry – and more and more companies that go beyond technology, such as car manufacturers – is that there aren’t enough display drivers to go around. Companies that make them cannot keep up with rising demand, so prices go up. This contributes to a shortage of supplies and rising costs for LCD screens, essential components for making televisions and laptops, as well as for cars, airplanes and high-quality refrigerators.
‘It’s not like you can just do it. If you have everything else, but you don’t have a display driver, you can’t build your product, ”said Stacy Rasgon, Sanford C. Bernstein responsible for the semiconductor industry.
Now the bottleneck is in a handful of such seemingly insignificant parts – power management chips are also scarce, for example – cascading through the global economy. Car manufacturers love Ford Motor Co., Nissan Motor Co. and Volkswagen AG has already scaled down production, leading to estimates of more than $ 60 billion in revenue loss to the industry this year.
The situation is likely to get worse before it gets better. A rare winter storm in Texas has cut off parts of US manufacturing. A fire at a major factory in Japan will shut down the factory for a month. Samsung Electronics Co. warned of one “Serious imbalance” in the industry while Taiwan Semiconductor Manufacturing Co. said it can’t keep up with demand despite factories running out more than 100% of the capacity.
“I’ve never experienced anything like this in the past 20 years since our company was founded,” said Jordan Wu, Co-Founder and CEO of Himax Technologies Co., a leading display driver supplier. “Every application is short of chips.”
The chip crisis arose from an understandable miscalculation when the coronavirus pandemic struck last year. As Covid-19 began spreading from China to the rest of the world, many companies expected people to cut back as times got tougher.
‘I’ve cut all my projections. I used the financial crisis as a model, ”says Rasgon. “But the demand was just very resilient.”
The world is short of computer chips. This is why: QuickTake
People stuck at home started buying technology – and then kept buying it. They bought better computers and larger monitors so they could work remotely. They have given their children new laptops for distance learning. They scooped up 4K televisions, game consoles, milk frothers, hot air fryers and immersion blenders to make life in quarantine more palatable. The pandemic turned into an extended Black Friday online palooza.
Automakers were blinded. They closed factories during the lockdown while demand stalled because no one could reach the showrooms. They told suppliers to stop shipping parts, including the chips that are increasingly important to cars.
Demand started to increase at the end of last year. People wanted out and they didn’t want to use public transport. Car manufacturers reopened factories and went hand in hand with chip makers like TSMC and Samsung. Their response? Back of the line. They couldn’t make chips fast enough for their still loyal customers.
A year of bad planning led to the huge shortage of chips from car manufacturers
Himax’s Jordan Wu is in the midst of the tech industry storm. On a recent morning in March, the bespectacled 61-year-old agreed to meet at his Taipei office to discuss the shortages and why it is so difficult to resolve them. He was eager enough to speak that the interview was scheduled for the same morning Bloomberg News requested it, with two of his associates participating in person and two more calling in by phone. He wore a mask throughout the interview and spoke carefully and eloquently.
Wu founded Himax in 2001 with his brother Biing-seng, now the chairman of the company. They started making driver ICs (for integrated circuits), as they are known in the industry, for notebook computers and monitors. They went public in 2006 and grew with the computer industry, expanding to smartphones, tablets and touchscreens. Their chips are now used in a variety of products, from telephones and televisions to cars.
Wu explained that he cannot make more display drivers by pushing his staff harder. Himax designs display drivers and then has them manufactured in a foundry like TSMC or United Microelectronics Corp. Its chips are made on what is artfully called ‘mature node’ technology, equipment that is at least a few generations behind the very latest processes. These machines etch lines in silicon with a width of 16 nanometers or more, compared to 5 nanometers for high-end chips.
The bottleneck is that these mature chip making lines are running at full speed. Wu says the pandemic created such strong demand that manufacturing partners can’t make enough display drivers for all of the panels used in computers, televisions and game consoles – plus any new products that companies place screens in, such as refrigerators and smart thermometers. and car entertainment systems.
There is particular pressure on automotive driver ICs as they are typically made on 8-inch silicon wafers rather than more advanced 12-inch wafers. Sumco Corp., one of the leading wafer manufacturers, reported that production capacity for 8-inch equipment lines was approximately 5,000 wafers per month in 2020 – less than in 2017.
No one builds production lines with mature nodes anymore because it doesn’t make economic sense. The existing lines have been completely written off and refined for near-perfect returns, meaning basic displays can be made for less than a dollar and more advanced versions for not much more. Buying new equipment and starting with lower yields would entail much higher costs.
“Building new capacity is too expensive,” says Wu. Peers love Novatek Microelectronics Corp., also based in Taiwan, has the same limitations.
That shortage is reflected in a spike in LCD prices. A 50-inch LCD screen for televisions has doubled in price between January 2020 and March. Bloomberg Intelligence’s Matthew Kanterman predicts that LCD prices will continue to rise at least until the third quarter. There is an “acute shortage” of chips for display drivers, he said.
LCD prices are on the rise
The prices of LCD screens have skyrocketed during the pandemic
Bloomberg Intelligence, IDC
Worsening of the situation is a lack of glass. Major glass manufacturers reported accidents at their manufacturing sites, including a power outage at one The factory of Nippon Electric Glass Co. in December and an explosion at the AGC Fine Techno Korea plant in January. Production is likely to remain limited this year at least over the summer, said co-founder Yoshio Tamura, co-founder of display consultancy DSCC.
On the 1st of April IO Data Device Inc., a major Japanese computer peripheral manufacturer, increased the price of their 26 LCD monitors by an average of 5,000 yen, the largest increase since they started selling the monitors two decades ago. A spokeswoman said the company cannot make a profit without the increases due to rising component costs.
All of this has been a boon to business. Himax sales are on the rise and the stock price has tripled since November. Shares of Novatek are up 6.1% on Tuesday to a record high, taking the gains for the year to more than 60%.
But Wu is not celebrating. His entire business is focused on giving customers what they want, so his inability to comply with their requests at such a critical time is frustrating. He does not expect the crisis, especially for auto parts, to end anytime soon.
“We’re not ready to see the light at the end of the tunnel,” Wu said.
Updates with shares in the third to last paragraph