Chip supply is in a hurry across the board, why is production capacity so tight?

From MCU, PMIC (power management chip), Display driver IC to MOSFET, from automotive chips, home appliance chips to Bluetooth and touch chips required for wearable devices… Since the second half of this year, the tight production capacity has gradually been transmitted from the wafer side To downstream chip manufacturers, a variety of chip categories are facing supply pressure. What is the main reason for this round of tight supply? How do design, foundry and IDM manufacturers view this “stock shortage” and what countermeasures will they take?

Chip supply is in a hurry across the board

“Simply put, the entire downstream industry chain has been affected, and we are currently unable to supply goods.” The person in charge of a wireless communication chip company told China Electronics News, “Some foundries have cancelled discounts for old customers that have lasted for many years. With discounts, everyone is rushing for production capacity.”

The reporter learned that, in addition to communication chips, other logic ICs such as MCU and memory have also experienced supply shortages to varying degrees. MCUs for home appliances, consumer electronics and other fields are particularly anxious for the downstream market. Without long-term orders to lock the supply, it is difficult for downstream manufacturers to find MCU sources that can be directly purchased.

“In the first half of the year, the supply was not enough for European and American manufacturers, mainly because of the lack of overseas supply. Now the domestic supply is insufficient, and the entire industry chain is out of stock.” Saiteng Microelectronics Chairman Huang Jipo told reporters about his observation, “We mainly take taxis. For standard MCU, due to the relatively stable automotive supply chain and our long-term stocking, the supply is relatively stable. However, for consumer MCUs, especially for companies with insufficient market grasp, the stocking is generally less, and the OEM capacity is very tight. There will be a shortage of supply.”

Analog ICs are also affected by this round of “stock shortages”, especially PMICs are the “hardest hit areas”. Although the leading manufacturers of analog chips are mostly IDMs with a certain percentage of internal production capacity, the surge in customer demand and the long semiconductor production cycle have resulted in prolonged delivery times and increased supply pressure for downstream markets.

“The capacity utilization rate of our internal manufacturing network in the first three quarters was about 70%, and we are currently seeing an increase in customer demand.” David Somo, senior vice president of strategy, marketing and solution engineering at ON Semiconductor, pointed out to reporters, “From the whole From the perspective of the industry, there is a challenge, that is, the lead time of order production, and sometimes it is difficult to keep up with the growth of customer demand. For example, from the front-end manufacturing to the back-end packaging and testing, the entire production cycle takes about 10 weeks. If there is demand The surge will create a backlog of orders at factories, further extending production turnaround times.”

 The main reason for the reversal of the supply and demand situation in the first and second half of 2020

“The current demand for production capacity is indeed very strong, and TSMC is also actively planning according to market demand.” TSMC said in a text response to the “China Electronics News” interview, “Remote learning, home office and data center expansion and other factors have led to a surge in market demand. Superimposed on the (downstream customers) desire for supply chain security, the market demand for fabs in the front end of the semiconductor industry chain has increased.”

As TSMC said, as the biggest black swan event in 2020, the new crown pneumonia epidemic has promoted the development of new formats such as remote office and “home” economy on the one hand, and increased the market demand for specific chips; on the other hand, it has also led to downstream The panic stocking of customers has exacerbated the production capacity pressure of wafer foundries.

When the time comes to the second half of 2020, changes in the economic environment further magnify the impact of the epidemic on the semiconductor supply situation. Due to the obstruction of international logistics in the first half of the year, the willingness to consume has declined, and many manufacturers have low willingness to stock up. In the second half of the year, the PMI (Purchasing Managers’ Index) of major economies rose, and market demand rebounded, resulting in a sharp increase in production capacity demand.

“Due to the epidemic in the first half of the year, manufacturers generally had insufficient stocking, and even normal business had to be discounted. Now the market has rebounded and real demand has come out. The previous pessimistic estimates of the industry by manufacturers have resulted in the stocking being unable to keep up with customer demand.” Huang Jipo said.

Somo also pointed out that the reversal of the supply situation in the first and second half of the year was an important driver of this “stock shortage”.

“The so-called out-of-stock phenomenon may be caused by a sharp drop in supply in the first half of the year and a sharp rebound unexpectedly in the second half of the year. That is to say, many companies stopped ordering at first, and then ordered a large amount to support the later period. increased demand, which may have contributed to the current out-of-stock situation,” Somo said.

While downstream demand rebounded, the supply side was constrained by logistics and production capacity.

“From the perspective of the macro structure of the semiconductor industry, the supply chain of the Chinese mainland industry is still dominated by the international market. At present, the global epidemic is still fermenting, and the logistics of the industry chain is still in a state of obstruction, which aggravates the shortage of supply.” Gu Wenjun, chief analyst of the research, pointed out to reporters.

It is worth noting that 8-inch wafer foundry is generally used for PMICs and MCUs, which are most in short supply in this round of tight supply. However, cost-effectiveness and lack of equipment have resulted in 8-inch capacity gradually falling behind downstream demand. When the downstream market rebounded sharply, the problem of shortage of 8-inch foundry production capacity became more prominent.

“Since semiconductor equipment manufacturers mainly produce 12-inch equipment, there is a lack of new equipment for 8 inches. The expansion of production mainly depends on old equipment or refurbished equipment, so capacity expansion is relatively limited.” Gu Wenjun pointed out.

 Manufacturers actively resolve supply pressure

Under the superposition of multiple factors such as market rebound, panic stocking, and tight OEM capacity, mainstream semiconductor manufacturers such as Fabless, Foundry, and IDM are taking corresponding countermeasures to improve their supply capabilities to downstream customers.

Acquisition, expansion of production, strengthening of upstream and downstream cooperation… As an IDM manufacturer, ON Semiconductor has taken various measures to cope with production capacity pressure, including purchasing a majority stake in Fujitsu’s 8-inch wafer fab in Aizuwakamatsu, and the acquisition of New York State, USA East Fishkill 12-inch fab. Currently, both plants are expanding production capacity to meet growing demand.

“80% of our components are produced in our factory, and if we look at the ATO (Assembly to Order) perspective, the proportion accounts for 70%. We are working with manufacturing and packaging and testing partners to continuously increase production capacity and improve supply capacity .” Somo pointed out.

At the same time, major foundry manufacturers are also reducing pressure on downstream customers by expanding production capacity and optimizing capacity utilization efficiency.

“TSMC will continue to optimize the utilization of existing capacity to actively respond to customer needs.” The relevant person in charge of TSMC pointed out to reporters.

When asked about the “lack of cores”, SMIC also stated in the SSE e-interaction answer that it would expand its production capacity and platform according to market and customer needs, and continue to improve the company’s core competitiveness.

For Fabless manufacturers connecting foundry and end customers, forming long-term cooperative relationships with upstream channel supply chains and enhancing their research capabilities in downstream markets has become the choice of more and more manufacturers.

“We will strengthen communication with downstream customers and upstream suppliers, give full play to the advantages of the local supply chain, and overcome difficulties with partners.” Huang Jipo pointed out.

Gu Wenjun also said that Fabless manufacturers should start from the supply and demand sides to deal with the production capacity crisis.

“On the demand side, do a good job of market forecasting and customer demand analysis; from the supply side, to strengthen supply chain management, you can increase supply stability by actively increasing upstream prices, locking in production capacity and other methods,” Gu Wenjun said.

Editor’s point of view: The full text clarifies that the reason for the shortage of chips is mainly due to the impact of the epidemic, and many manufacturers have incorrectly estimated the market form in the second half of 2020. The sudden strong rebound of the market in the second half of the year led to a surge in chip demand, which caused many manufacturers to increase orders, resulting in a backlog of orders in chip production factories, prolonged production cycles, and unsmooth international logistics, which further exacerbated the shortage of chip production capacity.

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