What about COVID caused the shortage? Is it shipping speeds? Change in demand? Less efficiency down the supply chain due to health requirements? Trade changes?
1. Companies cut their orders expecting less demand and lost their place in line for orders.
2. Because of the rush to work remote so suddenly people needed everything from new computers for kids, monitors and accessories for a home office and in general a lot of stuff that used chips.
3. Because of Covid there were shutdowns at semiconductor manufacturers and even disruptions due to fire and weather.
Suddenly the entire supply chain went into shock, something that had been perfectly balanced between supply and demand was full of uncertainty. Now we have a situation where everyone is begging for chips and they cannot be built fast enough. Essentially the companies are behind on production and the demand is so high they cannot meet it. Everyone keeps predicting an end but it seems that manufacturers are still falling even further behind than they were before.
Most of the companies that cut their orders were auto and industrials that projected a prolonged downturn and didn't want to carry the inventory on their books. They predominantly use the components manufactured on less advanced process nodes.
Thus when demand for new process nodes was increasing and old ones were decreasing at the peak of the pandemic it made sense for pipelines to retool to meet that demand instead.
On top of that US-China tensions means SMIC and Hua Hong Semi are now banned for many US producers which is further constraining supply. Also creating asymmetry where China is experiencing lesser a supply crunch. However there is also trouble brewing there due to Trump forcing the Dutch to block export of ASMLs new EUV lithography tech to China. This means they aren't able to start building fabs w/EUV to fill the coming supply gap there either but instead are now having to pour billions into their own lithography progam. Long term this will be good for the market (but very bad for ASML most likely) but short term its not great.
Take a look at "the beer game". One of the lessons from that game is that a single change in consumer demand causes a wide variety of supply chain disruptions. This lesson was learnt in the 1950s and unfortunately it looks like they stopped teaching this in mba schools, so we have to learn it the hard way all over again.
why do you believe this? we worked through that simulation as part of my mba program some years ago, and mba friends at other schools said they did the same. the bullwhip effect is such a core concept to operations management that it's hard to believe it wouldn't continue to be taught, though perhaps with an updated simulation demonstrating its effects.
if you're not over-supplied, when a new spike in demand starts a whip through your factory, things can go nuts for quite a while. you get power surges. drones that were behaving beautifully before start flying in chaotic patterns due to under/over supply and making a bunch of dumb local decisions about storage boxes. stuff grinds to a halt for no apparent reason, only to discover that some random component has become a bottleneck for practically everything, and then it can quickly shift to something on the opposite side of your factory...
in that sense, perhaps the biters help keep your factory more resistant. you have to deal with occasional component-losses and spikes in weapon demands, and if you don't handle them well enough you can get into an awful persistent struggling state.
A lot of Factorio newbies play with a "Spot bottleneck. Increase production. Repeat" mindset, though. The bullwhip effect absolutely shows up here, particularly if you're sharing intermediate products on a main bus. You start constructing purple circuits; that means your red circuit production is no longer adequate and you've starved blue science. You make more red circuit factories; now you're not constructing enough green circuits, and your whole factory has ground to a halt, but the red circuit buffer is filling up. You increase green circuit production; now you're starving the rest of your factory of iron and your steel production is lagging, dropping purple science production.
(And not limiting boxes)
It's just some parts can't keep up and everything after goes as fast as it can with the supplies it gets, running pretty steadily. It's what you want to happen when supplies are low, for the most part.
Yeah, it definitely shouldn't. But that's me, hacking together whatever I could to see that unsatisfying rocket launch and finally get the game out of my head. So I'd build something new and supply it from a steel conveyor that had a supply buffer, under estimating how much it would actually use. Then it would eat too much and cause a shortage, which meant other components somewhere else overflowed through lack of use, and overall progress would slow down until I ramped up steel production some more. That sort of thing.
So, ideally, everything would go smooth. And plenty of the time for me it did! But a tiny flaw could also be magnified through the system and suddenly I can't produce yellow research bulbs because I was two steel furnaces short of actual demand needed to for servo arms, and production would have peaks and valleys until the additional supply smoothed things out.
That depends. Either way, what I'm describing are my own observations in Factorio are those instances where shortages actually do end up causing bullwhips.
And shortages are not always easy to correct: A "mere bottleneck" is what we have in the chip shortage. Production capacity is the bottleneck, and correcting it is complicated.
That is what I also observed in Factorio: A small increase in demand that exceeds supply creates a bottleneck because production can't keep up. It propagates throughout the system causing other shortages where the components 4 or 5 layers down the chain need the scarce material. And also causes surpluses on multiple levels because components can't be used to make the components that also need the scarce material.
Fixing the shortage isn't always easy. If you need a lot of a specific material to build the production capacity to fill the shortage, that may reveal yet another bottleneck in producing another material, and so on.
IRL, it's possible something like this could occur with the increased uptick in fab production. ASML might be a bottleneck in providing drastically more equipment for more fabs. Or someone up the supply chain that feeds them resources could be bottlenecked. I guess we'll see how it plays out though.
It's a little dumb that basically all advanced chip manufacturing in the world happens within a thousand mile radius of Beijing and we're over here an ocean over wondering where our supply went. More energy needs to be focused on made-in-USA and less on the thing we have no control over
And that is that semiconductor manufacturing has been chronically and almost criminally underinvested. The coronavirus pandemic was just a triggering event that brought the whole house of cards down.
The thinking in the financial world for the past 10-20 years has been that software is the hot, growing license to print money industry and actually manufacturing chips is a dirty, competitive, low margin, low return on capital industry best left to the Asians. And of the actual chip manufacturers the ones to be most favored were the ones making digital chips and the ones making analog and power semiconductors were the dirtiest most disliked commodity like companies.
Even within the semiconductor world, the financial world heaped money on fabless semiconductor companies like stock market darling Nvidia and did not give much respect to the companies that owned the fabs and made the chips. And even less respect was paid to the ones that made power and analog chips.
Guess where the biggest shortage is now. In power and analog. Also, in packaging, another field that was considered unsexy, low margin and too competitive to bother with.
Everybody talked about how software is eating the world and heaped massive amounts of capital on software companies but they kind of neglected the important role of semiconductors. And even when they talked about semiconductors they talked about the "important" ones, the "brains" of the computer, the cpus and the graphics chips.
So while software companies (especially SAAS ones) would have license to lose large amounts of money and still have receive endless streams of capital, companies that manufacture chips would be judged severely by the market on profitability and free cash flow. This is especially true for analog and power semi manufacturers.
Free cash flow is a very dangerous metric for a growing industry. Capital spending gets subtracted from cash flow to arrive at free cash flow, which means that if a CEO is judged by free cash flow, he will try to minimize capital spending. That of course will hurt future growth.
I have been investing in analog and power semiconductor companies for many years now, and the CEOs of all these companies knew that a jump in demand was coming. But they all wanted to keep their jobs so they all talked about how they will grow their revenues by minimizing capital outflows etc. If they were cheered by the market for having cash outflows of the type many SAAS darlings have, we would be swimming in semiconductors right now.
For example, if some one wants to do some further reading, check out old investor presentations of Texas Instruments. By old I mean a couple of years ago, before coronavirus. Probably the largest power and analog semiconductor manufacturer in the world. Their entire sales pitch to investors was about free cash flow and capital return to shareholders. That is great for many types of shareholders, but this is not something a high growth company should be doing. Needless to say now they are swamped by demand and do not have production capacity anywhere near to what demand is.
There is another peculiar quality of semiconductors. They are easy to store and they do not go bad after taking some minimal precautions in storage. This means that any rumor of a shortage and price increases causes everybody that uses semis to go out and buy out everything the suppliers will let them buy.
So there is a very unstable situation. A- there is a shortage and B - even the possibility of a shortage causes hoarding behavior that makes the shortage worse.
That already unstable situation existed before coronavirus. And then coronavirus came. And it triggered a heightened demand for semiconductors. And that triggered a snowball effect of hoarding and higher prices, more hoarding, etc.
The solution is that prices should go up (already happening). Stock prices of semiconductor manufactures should go up. And here I mean actual manufacturers, not fabless chip designers. This should happen especially for analog and power semiconductors where the biggest demand and the biggest underinvestment lies. This has not happened as much as it needs to. Higher stock prices should cause more money to go to the fab business and that should eventually result in the necessary growth in semiconductor manufacturing.
All of this will take time. And meanwhile there will be a lot of hoarding. There may also be occasional panics where the hoarders dump a lot of hoarded inventory thinking prices are going down, cause prices to go down and later discover that prices are shooting back up again after their inventory gets used up.
But in the end hopefully we should end up in a world where (1) there is much more investment in semiconductors and (2) we eventually get all the benefits of the wealthy, high production, environmentally sustainable, all electric future we have been dreaming of.
TSMC all-time high is 632 and is trading now at 620. I don't know about tanked or how you lost money (unless you put a x10 leverage when the stock was at ATH)
> The solution is that prices should go up
Prices at resellers are going up of course, but there's a reason why TI, On Semi, Nexperia, etc might prefer to stock out at a low price than to have product available at a high price: they still want to be selected by cost-sensitive design engineers who are designing products that will be on the market well after the shortage is over.
So much from before seems old and foreign. Definitely one of those events that marks a definitive before & after... and during, since we still don't quite know how or when things will settles out to a new normal.
Second, the quarantines combine with unemployment that frees an abused workforce from abusive conditions. Instead of being wage slaves forced to take any job what-so-ever workers are able to demand jobs that value safety protocols, pay well enough to live in an area (which is also extra insane right now), and have reasonable hours (enough, the right times etc).
Third, (rent) given a combination of working from home, closed 'entertainment' venues, and general quality of life concerns many have decided to flee the high rents of cities for suburban and even rural areas where their money goes farther. This causes more desire to purchase and more wasteful food packaging and production at home as well. Everywhere around me prices have gone up on eating out something like 25% since the start of the pandemic; my wages have not. So instead of eating small portions of bulk shipped and prepared ingredients I'm now eating at home more, mostly frozen stuff. The price of rent didn't quite increase that much but housing is also insane right now, just like even used cars, due to the supply crunch.
Supply correction is how we as a culture, country, and world escape this problem. Increasing supply in all of the problem areas is the only way out.
Supply means buying power goes up, irrespective of wages. Those misguided attempts to raise everyone's minimum wage (tax the middle class, since the elite who own the rentable units will just raise their rates) would work far better by decreasing the cost of a better life. It could also be targeted towards desired resources, growing out of undesired patterns and standards which is also opportunity for better energy efficiency.
We could also just make the elite pay for it. Just saying.
The real solution is to densify and build way, way more. Why doesn't SF look like China with skyscrapers on every block?
Edit: it was legal or pseudo-legal until 1964 for developers to subtly (or not so subtly) advertise that their new developments would not be seeded with non-whites. It was a selling point.
If the rental rates were set correctly, none of the extra taxes can be passed on. The most likely result is the price of the buildings will go down and new renters will be able to buy in more cheaply but get less per rental.
Once again the Land Value Tax shows its brilliance.
I agree that LVT would make a huge improvement if it was set high enough though. But it will never happen when you have homeowners leveraged up 20x on govt subsidized mortgages who vote for themselves.
Are we shipping more chips than even, only demand is allocating unevenly?
Are covid + multiple factory incidents at fault?
Even the cost the stay at the cutting edge facts seem a little suspect for at least some chip markets. e.g. embedded chips such as for automotive use are generally are multiple generations behind fab technology - and really don't need to stay on a cutting edge fab to keep profitably producing for many industrial embedded components.
Giant stocks of everything started to vaporise overnight, all at the around same time last November.
I have a few STM32 reels of different models some of which I can now sell at $10 per MCU. A 100-fold increase in price, that beats any bitcoin.
The starvation of seventies, and hungry eighties have taught Chinese a thing, or two about shortages.
People in the ex-USSR countries had the same tendency to run hoarding stuff on every economic doom announcement.
- Blame Toyota with their Just In Time inventory management ideas.
- Factory closures, lockdowns, etc.
- Increased demand for certain items. Everyone's at home surfing the web, playing games on their computers, mining bitcoin?
- Monetary policies are creating excess (see bitcoin mining) demand.
- Shipping delays. Ports running at reduced capacity. Ships sitting at sea waiting to get access. Suez Canal blocked. Shipping companies have no spare capacity. Blame Toyota.
- Building new factories takes time, getting/building new machinery takes time, everything was set up to not have any over capacity (since that's loss) ... blame Toyota again.
- Big companies swallowed everyone so we don't have as much diversity of products as we used to. Probably related to easy money as well.
tl;dr Toyota, Greenspan, Covid ... Somewhat in that order.
EDIT: Should probably add the trade war between the US and China to that list.
Toyota had a stockpile [1] of semiconductors and are only now-ish running into the same supply problems everyone has been since March 2020.
[1] https://www.bloomberg.com/news/articles/2021-04-07/how-toyot...
> But the Tohoku earthquake’s aftermath pushed Toyota to increase flexibility, and the value of inventory Toyota carries has almost doubled since 2011. Speaking at a briefing in February, Toyota Chief Financial Officer Kenta Kon said as part of the company’s business continuity plans, it keeps as many as four months of stock for some crucial components such as chips. Toyota didn’t expect the semiconductor shortage to disrupt production in the near term, he said.
Saying blame Toyota is funny, but really all the execs who say a cost savings and took without consideration of supply chain problems are actually to blame.
The next time Bloomberg manages that will be the first time.
Completely, utterly useless for tech reporting of any kind.