Will Chip Shortage Stretch into the End of 2022?

Last year, one of the largest issues in the semiconductor industry was the chip shortage. It emerged in 2020 because of COVID-19 and was continuously worsened by recurrent COVID-19 outbreaks and the ongoing US-China Trade War. In 2021, the world has experienced the worst chip shortage ever; auto chips and GPU chips have been impacted the most severely. Moving into 2022, the public is eager to know what will happen—will chip shortage still last? When will the disaster come to an end? Many voices are discussing about the circumstance of chip shortage, and a lot of analysts believe it will persist in the first half of this year, and things will start to improve in the second half.

The assumption might be too optimistic. After our interviews with leading suppliers, we consider chip shortage will persist until the end of 2022, and the reasons will be addressed in detail.

Equipment Suppliers May Not Support the Capex Plans from Chip Suppliers

In the late 2021, IC Insights had predicted that the worldwide semiconductor capex (capital expenditure) would burst 34% YoY to USD 152 billion that year, and obviously the huge increase came from those endless semiconductor orders. At the prospect of 2022, it is foreseen the capex amount will still grow subsequently. For instance, Taiwan Semiconductor Manufacturing Company (TSMC), occupying 53.1% of the global foundry market, has announced to invest USD 40～44 billion this year, with another significant growth compared to USD 30.04 billion in 2021. United Microelectronics Corporation (UMC), another Taiwanese chipmaking giant which occupies 7% of the market, also stated to raise its 2022 capex to USD 3 billion, with a 66% YoY growth.

Chipmakers are actively increase their capital expenditures to ease the chip shortage. However, the chip shortage is likely to persist as the equipment supply goes short as well. Delays of new equipment and equipment parts make new process plans and maximizing capacity utilization more challenging. A leading equipment supplier has told us that the delivery schedule of some critical parts for its CMP (Chemical Mechanical Polishing) systems cannot even be determined from more than 2 months ago until now (which include safety related parts, fiber amplifiers, fiber sensor heads, and others).

Therefore, although chipmakers are still planning to raise their capital expenditures continuously, the semiconductor equipment suppliers may not catch up with these expectations on time.

Chip Shortage Is the External Form of the Bullwhip Effect

The overbooked orders from 2021 makes the chipmakers need time to digest in 2022. Jefferey Chiu, CEO and technical consultant of Ansforce Inc., has pointed out the problem in his previous article. In general, he mentioned, electronic manufacturing companies do not like to pile stocks. Nevertheless, due to the COVID-19 outburst, the inventory preparation of these companies turned from a period of less than 3 months to almost 6 months (or even 1 year). As a result, the chips were over ordered all the way from the sales side to the manufacturing side. And the bullwhip effect has happened.

Chiu took an example to explain the situation. Assuming a company needs 100 pieces of a certain kind of IC every month; before the outbreak of COVID-19, this company prepared 200 pieces in its warehouse and ordered 100 pieces each month. At this time, the capacity utilization of the foundry is estimated to be 80%.

After the pandemic happened, the company started to prepare more inventory, that’s say, 600 pieces in its warehouse, which means it would order 400 pieces of ICs in addition. And these extra 400 pieces can only be manufactured by the remaining 20% capacity from the foundry. 80% of the foundry’s capacity manufacturing 100 pieces of ICs implies 20% of the capacity manufacturing 25 pieces, which indicates it takes 16 months to make the rest 400 pieces.

It is an over-simplified example, but the current situation is similar to it, and the bullwhip effect makes the situation worse. Currently, we have been informed by a top equipment supplier that its orders in 2021 from a certain chipmaker will need to be digested at least until October, 2022.

To sum up, the bullwhip effect in 2021 will continue to negatively affect the semiconductor supply chain in 2022, and the external form of it will certainly be chip shortage.

Find Chips and Modules at TECHDesign

As mentioned above, the stockpiling of chips creates the phenomenon of chip shortage way until the end of 2022, and it may negatively affect those manufacturers who urgently need chips. If you are one of them, don’t worry, just come visit TECHDesign now!

Here at TECHDesign, you can easily find multiple kinds of chips and semiconductor modules, from microcontrollers, memory ICs, to MLCCs, and the greatest of all, we are super ready to provide the best services for you!