The semiconductor bust – still coming?
asianometry.substack.com
asianometry.substack.com
There are bottlenecks in all electronic assemblies. Processors, crystals, specialized chips, etc. Things you just can't substitute. China identified many bottlenecks and strategically bought the entire supply. For thousands of items.
Hundreds of billions of dollars worth of electronic components. Then they marked them all up 100x and are now selling them back to us.
Supposedly they are just "Chinese brokers", but the scale is far too large not to be government sponsored.
Here's an example: MKL27Z128VFT4 NXP Kinetis ARM Cortex M0+ Microcontroller. You haven't been able to buy these for over a year now. And it will be another year before you can buy any. They used to go for $2.50.
Brokers have 215,000 pieces in stock[0]. Mostly in China. (The US brokers have tied themselves into the Chinese broker inventory.) Average price now: $100 each.
[0] https://www.netcomponents.com/results.htm?flts=1&t=f&sm=&r=1...
They never actually stepped in and did anything, presumably because the businessmen aren't dumb enough to say something like "what can you tell me about Tiananmen Square?"
That’s a key phrase here. Did others do the same? If they didn’t then why not? And if they did, then they are surely profiting from the shortage as well. I wonder how long this can go on for… I mean if you can make less of something, and make 2x or more (in your example) profit from it then I’d guess some businesses might not want this kind of arrangement to end.
Once the supply chain starts to catch up, they will dump everything at once and possibly ruin the manufacturers if they aren't careful. And careful mfgs means supply disruptions will be extended even longer.
I mostly posted because it doesn't seem like anyone is even noticing the coup. There will be laws against this kind of thing some day, in the aftermath.
What do you read / use to stay current on what you are referring to as a coup? Are you noticing these trends / events because you are a frequent buyer of related technologies or is it out of interest or maybe some other reason?
Do you think more manufacturing will be moving to the states or out of Asia in general as a result of what’s happening now? You mentioned that you believe there will be laws against this kind of thing in the future, but depending on the state of global affairs/ economic alliances laws like these would be difficult to enforce (imo), so would a more direct solution involve countries producing their own chips / (whatever else is being hoarded now)?
I doubt wafer manufacturing is coming back to the States in less than 10 years.
I'm not sure the best way to make laws, but something will be done when the damage is clear. Chinese sanctions wouldn't surprise me.
Yes, and that's part of the problem. It's not just hoarding by Chinese brokers. There is a massive, unknown, and unknowable shadow inventory of parts sitting on shelves at EMS facilities right now, far in excess of near-term production demands... just as many/most of us had a garage full of toilet paper last year that we are only now working our way through.
Our factory rep says it's getting hard to walk down the hall between the floor and the receiving dock, given all the boxes stacked up everywhere. They are sweating their next fire inspection.
And I’m guessing nobody wants to re-sell (at somewhat regular prices) or there is no mechanism to return excess stock of goods to a distributor that can then mark the price up a little to make it worth their time? I don’t know how this works, so please excuse the kinds of questions I’m asking.
The correct way to solve this would be to set up a futures market on the parts. This way people who really need certain quantities at certain dates can still access them, and hoarders can put a price on the stock they're sitting on.
That's the genius of the bottleneck hording approach. But you still need ~$100 Billion dollars to pull it off, which mean only a few players in the world could do it.
The problem comes from sitting on that 99% inventory for so long that the bills come due. Normally you get 45-60 days to pay and you sell your product by then so your cashflow is fine. But now, you need to get loans, interest rates are rising, etc. There is a finite time that companies can hold on before it all comes crashing down.
Semiconductor manufacturers have been overdue for a back-catalog contraction for years, and I think that's part of what we're seeing now. Many of the parts that are currently in short supply with ridiculous multiyear lead times are not coming back, IMO. Not in 2024, not in 2025, not ever. When you see lead times exceeding two years, that's the manufacturer politely telling you, "Respin your board to use something else. No, really. Respin your board."
This is not to mention how China’s crown jewel Huawei got cut off from supply for sometime due to sanction, so it actually makes a lot of sense for China to stockpile chips in general if they can afford to.
Hoarding or panic buying is an example of bad-faith behavior. Panic buying hurts buyers without means to hoard. With groceries, it might mean their children going hungry after a rich guy empties out local store (not everywhere a store manager can flat out refuse to sell). With microchips, where bad-faith behavior may also be amplified by information asymmetry (coordinated action by large number of players), it may mean stagnation in the industry and wide-reaching implications for everything that has grown to rely on microchips (which, incidentally, includes the above-mentioned grocery stores, their supplies and so on).
With groceries it is a bit easier to understand the impact of your actions, because the aforementioned local rich will see hungry children’s parents day to day. With microchips and global market, the negative impact is far removed (and in many cases can be considered beneficial, if country boss designates some group of humans as “the enemy”), and one is incentivised to keep looking for ways to exploit market mechanics technically legally but in bad faith.
Hoarding of microchips makes me worry about the global market. It may seem like a good idea to include bad guys into it, since participating in it may make them more interested in getting along with everybody, but if we have one psychopathic, chronically insecure participant insisting on playing a zero-sum game it’s feasible that they ruin the whole initiative and “outplay” the rest who assume the best in others.
Yeah, if you’re not very profitable you won’t be able to afford it. You’re not the best use of the good in question, i.e. the one that makes the most money.
Cornering a market in anything is incredibly hard. Doing it motivates others to find substitutes or secure supply. That’s capitalism. If you don’t want to play find a different game.
It looks like capitalism is sometimes taken to mean an extreme zero-sum form of free market where everybody is out to win at the expense of others. Proponents of centralized dispensation by an all-powerful government often bring this up, but is that the mainstream meaning of the term?
For the record, I don’t think the requirement of market participants to act in good faith is a bug. I believe the existence of malicious actors is not fundamentally inevitable, and mutual trust is empowering.
Many, many markets work fine without enduring personal relations. If you want security of supply of commodity parts buy a stockpile.
Hoarders. (In this instance, as per upstream comments, possibly coordinated, possibly by CCP.) There’re fairly illustrative examples in my comment that you are ignoring. You should address them if you object to that idea.
> If you want long term security of supply pay for it.
A single player cannot outbid a state and/or many players acting maliciously in accord.
It's easy to curse them for price gouging -- and believe me, we have, being forced to pay $300 for $50 FPGAs -- but if they weren't gouging, those parts wouldn't be available to us at all.
But it's cutthroat capitalism to be sure. I don't see how any products with consumer-level pricing and profit margins are getting built at all.
I personally wouldn't give the CCP that much credit, at all.
In my experience, the signs for this crunch in supply were there. The unusual part is maybe the speed at which it took hold and now the amount of time the shortages are lasting.
I was arguing for building inventory when the situation was (in my eyes) clearly getting bad, the business chose not to. Now its much much worse. A 5-10USD lithium charge controller goes for about 100USD (one seller had it for 500USD).
At least this way, the smaller businesses that get ignored by the big suppliers in times like these, can get supply if they can pay.
It's also not all just brokers. The outfit we use in China for PCB fabrication and population saw the signs and stocked up on inventory on their one initiative. They are the only reason we can make anything at all.
Fundamentally ICs are NOT a Just-in-time-able part. And if people actually read the book on JiT they'd understand that fact, and they would keep inventory.
When you see this time and again like me, it's hard to have sympathy for businesses that get caught out. (I do have sympathy for those that came prepared and are now stuck though).
Next crunch time (and there always is a next time in this business), I seriously think I'll just invest in IC inventory. Because honestly if I did this time, I probably could have retired early.
It's just one isolated data point, but it's hard for me to understand how we could be seeing a coming bust when we are still in the midst of such a shortage.
Predicting an oversupply any time soon when chips in the leading, middle, and trailing edges are in an unprecedented shortage is like predicting that someday California will have too much housing. I mean, on a long enough timescale, maybe... But that's well into the "being too early is the same as being wrong" territory.
I figure someone much smarter than me ran the numbers and decided it's not worth the cost. And chips being in such shortage for many years would likely be worth the cost.
All of that said, I wish the US gov would sponsor in some way new fabs in the US. It's nearly a national security risk at this point.
Chip companies are making new fabs in the US and the US gov is helping to sponsor them.
[1] https://www.nist.gov/semiconductors/chips-act
[2] https://www.usatoday.com/story/business/2022/04/14/intel-neg...
I suppose I should have researched more recently before commenting. The fact that this doesn't make front page national news is mind boggling to me.
(I mean, I think we should make sure Taiwan is never invaded and remains independent, but it's also not great to need to commit forces against a rival nuclear superpower if it does get invaded, given that said rival superpower continuously and loudly proclaims that Taiwan is part of its territory.)
I wonder how many years the companies can keep running without producing or selling much. Also what the situation is with employees. Here in the U.S. a company would be quick to start layoffs if there's no revenue and no work to do, and after years passed it wouldn't be easy to quickly restaff and rebuild capacity.
BestBuy had fine stock when I went in a week ago. Next gen is dropping soonish so miners are holding off.
I got my 3090 from a miner who was hooked in to the scalpers. They weren't so over priced, a lot of people just look at the cheapest possible 3090 and compare to that, not realizing there are different levels.
They also noted that HPC grew 26% quarter over quarter - far faster than almost every other category other than automotive, which is a far smaller part of the overall business."
AFAIK TSMC list crypto (that is various chips made specifically for proof of work mining) in the HPC category.
It is not unlikely that market will correct violently at one point.
Plus on the fab/design side there is a lot of stuff happening in mainland China and it one point that is going to hit the market.
That shouldn't affect TSMC at all, as their remaining HPC customers would happily use that capacity as well.
I mean everybody knows it's really bad, but it's so hard to get a feel for and to see if anything is changing, unless (I guess) you're seriously In The Trenches doing e.g. component sourcing for some boards.
I imagine something like https://dowehavechipsyet.com/ (made-up domain) with current inventory across western and eastern suppliers, price with price trends, manufacturer's stated wait time for orders, and so on. Like an aid in quickly seeing the state of the industry, perhaps for uh I don't know, either some varied selection of components (micros, transistors, power parts, etc) or deeper with perhaps 5-10 chips from each category.
Does that exist and nobody told me? :)
Like many things in tech, each manufacturer/vendor/distributor does not have the same "API" (if it even exists) to broadcast their stock status.
Here's some links to parts that have been a pain in my side. We have to result to hoarding brokers with 1000x markups to continue production (not my call, I'm the guy with the oscilloscope not the suit...).
https://octopart.com/tps1h100bqpwprq1-texas+instruments-5534...
https://octopart.com/at25df641a-mh-y-renesas-118506301?r=sp#...
-You have to look at inventories in relation to sales, either shipments or new orders (inventory-sales ratio)
-Manufacturers’ inventories are up sharply because of materials and works-in-progress. Their finished goods inventories are sill low relative to new orders. It’s the bulges in the durables finished goods-to-new orders ratio that indicate a crash in semis coming. As of March, there are zero signs of that in any of the silicon-heavy categories.
-Anyway, wholesale inventory-sales ratios are a better indicator. https://fred.stlouisfed.org/graph/fredgraph.png?g=OVAY
1952: no integrated circuits
1962: no war
1972: no pollution
1982: no cellphone
1992: no internet
2002: no sub-quadratic multiplication algorithm
2012: no moore's law
2022: no transistors
2032: no water
[... ] and people seemed to have enjoyed it.
And by "enjoyed it", I mean that they screamed at me in the comments that I had no idea what I was talking about. Which is par for the course here.
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Ouch.