Hacker News Reader

Comment by kqr | Hacker News Reader

Very interesting breakdown. It sounds to me like the core of the problem is that everyone needs fab slots to build their things, but fab slots are a limited resource and car manufacturers have bid up their price to levels few others are willing to match. Does that seem about right?

View on HN

No, that's wrong. Fab slots are not a limited resource (except at the very high end). They just have a lead time of 12-18 months and it takes a lot of time and a lot of lost production to change what they produce any faster than that.

The way your original comment phrased it I assumed phab slots are not actually locked in 12 months in advance, and if you pay someone enough they might agree to swap the masks they were going to use for yours. That would mean fab slots are acting like a scarce resource in the short term (3--12 months?). Is that also not right?

I'm not saying the system isn't broken and/or that car manufacturers aren't jerks for monopolizing a scarce resource and putting other demands in tight spots. I'm just reading it as regular free market capitalism level broken, but it sounds like you're saying it's even more broken than that. This is a topic very relevant to my current interests so I truly do wish to understand it.

There is a cost to switching, and a time delay. If you switch faster than the optimal interval, you lose some of the stock that was in-process. Because of this, a large industry changing their mind back and forth rapidly with a particular alignment to that interval can cause disproportional disruption. This is happening here. They changed their mind on short notice, causing one wave of disruption as everyone adapted, then they changed their mind on short notice again in the opposite direction, causing a second, even bigger wave of disruption on top of that. Suppose you were on a plane from London to Dubai, and someone tells you to get to New York as fast as possible. You can't turn the plane around, so you wait until you're in Dubai and take the next plane in the opposite direction to New York. But halfway there you get a phone call saying you need to be in Singapore instead. Again, you have to wait until you land before you can do anything about it, and your entire current trip is wasted. Getting from where you were originally headed (Dubai) to your ultimate destination (Singapore) is a short trip, but by timing the instructions at especially inconvenient moments, you end up having to add enormous cost and resource waste to reach the same target. The car industry is definitely paying for their fuckup at the moment, but everyone else who uses electronics is stuck on that plane with them going the wrong way.

Ah, okay, that makes sense. Do I get it right that there are then essentially these two additional problems going on here, beyond short-term slots being a scarce resource:

- When manufacturers change their minds quickly and pay the price to buy up a lot of slots last minute, they are effectively also "burning" some slots that will simply no longer add to worldwide production of anything? and

- Being such a big customer with a high variance in demand, the car industry have are making it nearly impossible for the rest of the market to make rational decisions based on long-term forecasts?

(It might sound like I'm stating the obvious here but I know how often I think I understand something but later turn out to have missed the mark completely anyway.)

Yes. See my reply to your other comment.

here's the wafer agreement that i found between TSMC and Altera. there's probably more to this. i think auto maker's chip suppliers didn't sign the wafer agreement with fabs.

" 5.12 ADJUSTMENT IN CAPACITY RIGHTS AND OBLIGATIONS. Unless otherwise agreed in writing by the Parties, any adjustment in the Buyers' Percentage Interests which results in a change in their Adjusted Percentage Interests (as defined in Subsection 1.1.3), shall not become effective for purposes of the Buyers' Basic Purchase Shares until the thirteenth (13th) week after the date upon which the adjustment in Percentage Interests occurs pursuant to the LLC Agreement, and unless agreed otherwise by TSMC and each Buyer under a Purchase Order, no such adjustment in Percentage Interests, when so effective, shall operate to cancel, amend or otherwise affect any Purchase Orders accepted by TSMC prior to the date that such adjustment in Percentage Interests is so effective."

https://corporate.findlaw.com/contracts/operations/purchase-...

Reply on news.ycombinator.com