A growing sense of crisis is unfolding amid the unfolding global shortage of chips, processors and capacitators, coupled with the real possibility that China, could move to take over Taiwan bringing the supply of PC’s and components to a shuddering halt.
Currently smartphone, TV, notebook, and gaming machine production are being impacted because powerful automotive Companies have lobbied their own Governments to prioritise supple to them over chips for CE products.
What’s emerged during the COVID-19 crisis is a power struggle involving chips, South Korea is moving to legislate its first special bill on the local semiconductor industry and the USA is pushing big component manufacturers such as Taiwan’s TSCMC to set up robotic manufacturing in the USA.
Korea has already indicated that they won’t sit back as the world’s major economies — namely, the US and China — seek to realign global supply chains of key materials to their benefit.
If China does move on Taiwan and the US, Australia, and Japan back Taiwan in a fight with China backed by NATO support there is the real possibility that trade with China and Taiwan could bring the supply of technology products to a standstill which will be a devastating blow to the Australian economy and CE and appliance retailers.
“The semiconductor sector is our nation’s core national strategic industry, which our economy’s present and future depend on. We must continue to lead the global semiconductor supply chain,” South Korean President Moon Jae-in said last week during a meeting with representatives of major industries, including semiconductors. Chips account for one-fifth of South Korea’s total exports.
Six months ago, shortages of components were being talked about as a “possibility” now the issue has become so severe and entrenched that it is impacting the likes of Apple, Sony, Microsoft, and Samsung Electronics, and has even taken on political and diplomatic urgency.
Last week U.S. President Joe Biden hosted a meeting at the White House with tech executives from Intel, Taiwan Semiconductor Manufacturing Co. and Samsung Electronics, and automakers including Ford Motor and General Motors, to discuss the chip shortage and the resilience of global supply chains.
One former Australian cabinet Minister told ChannelNews at the weekend that what former US President Trump should have done, was slap a 30% tariff on Apple products, which they claim would have resulted in organisations like Foxconn the assembler of Apple products and the world’s biggest tech Company suddenly accelerating their investment in US or no China manufacturing pushed along by Apple who can afford to invest in US manufacturing.
Apple, the world’s most powerful procurers, has seen production of some of its MacBooks and iPads already delayed with their new 2021 iPhones also facing major supply issues.
The latest power struggle over chip supplies could also serve as an opportunity for Korea to reconsider its approach to the semiconductor industry, Government officials claim, with the Country seen as a stable tech advanced location for manufacturing.
The supply crunch became a pressing issue for governments worldwide when it began to hit automakers earlier this year.
The U.S., Japan and Germany, the world’s three biggest automaking countries, started pressuring Asia’s key chipmaking economies — South Korea and Taiwan — to prioritize automotive chips, even at the expense of other customers, including smartphone makers and computer manufacturers.
The three governments were wary of automakers having to slow or even halt production due to a lack of chips — threatening domestic jobs and economic recovery from the coronavirus pandemic.
Companies like TSMC and Samsung have responded by cranking out chips as fast as they can.
Currently Australians cannot buy a new PlayStation or Xbox because of component supply issues. Notebooks are on backorder and a big shortage of TV’s is looming.
“We have renegotiated with some of our clients and helped the government’s call to prioritize automotive chips that are important to the global economy,” said Mark Liu, chairman of TSMC. “It’s different from in the past, when [allocation of] chip production capacity was based on a first come, first served principle.”
One result of this chaos is that the already fierce competition in the tech industry has grown even more cutthroat.
“We are telling our suppliers not to give chips to the smaller competitors, and that we will pay higher prices to secure more chips and components. … I am sure my competitors are saying the same thing to the suppliers,” a computer industry executive told Nikkei Asia. “It’s like, ‘If I can’t get enough chips and components, I don’t want anyone, especially my rivals, to get enough of them, either. If I am going to be impacted, I must drag my competitors down, too.'”
Some PC makers even placed orders that were bigger and much earlier than originally planned to soak up capacity and impede their rivals’ ability to secure supplies, Nikkei Asia claimed.
“Even supplies of second- or third-sourced components are tight, now claim observers.
I dined out with the bosses of these suppliers eight times the other week and went golfing with them so many times, pleading with them to prioritize my needs and give me as many supplies as possible,” said a high-ranking executive at Compal Electronics, the world’s No. 2 notebook computer maker.
The roots of the problem go back to 2019.
The outbreak of COVID-19 early last year, led to lockdowns and quarantines across China, this disrupted the tech supply chain.
Once deliveries got back on track, electronics manufacturers raced to book more inventory than they would have in the past to ensure they would not be caught short again.
Off-and-on lockdowns and the mass adoption of remote working and learning spurred a massive digital transformation. Adoption of 5G networks and smartphones, which require more chips and components, also picked up speed.
A typical 5G smartphone, for example, has three antennas, compared with one in a 4G smartphone. It also needs 30% to 50% more “passive components” than a 4G handset.
The U.S.-China tech war, which predates the pandemic, has also strained the supply chain claim analysts.
When Washington sharply restricted Huawei’s access to vital U.S. technology, the company stockpiled as many supplies as it could, while it could — and other Chinese companies, fearing similar treatment, followed suit. The result was a massive front-loading of demand for chips and other vital components.
Further U.S. actions followed, including the blacklisting of China’s national chip champion Semiconductor Manufacturing International Co., which counts Qualcomm as well as many Chinese chip developers as clients. Customers worried about SMIC’s ability to maintain supply continuity placed backup orders with other chipmakers, whose production pipelines were already crammed.
The boom in chip orders — reflecting both real demand and defensive bookings — sucked up almost all production capacity for chips and components for the next 60 weeks according to several Australian technology Companies who are now having to forecast supply 12-16 months out.
One reason the supply crunch is so difficult to overcome is the long time needed to increase production capacity, either at existing facilities or by building new plants. Intel of the U.S. has announced it will spend $20 billion to build two chip plants in Arizona, but these will not go into operation until 2024.
Another reason is that the shortage has started impacting chip equipment makers, meaning that even if companies want to expand capacity — and not everyone is willing to take that risk — they face lengthy delays waiting times for new orders.
two fires at Japanese chipmaker plants have impacted the supply of audio products in particular receivers and amplifiers as well as automotive components.
Samsung Electronics, which is also the largest memory chip supplier, has also warned that the situation is critical.
Peter Hanbury, a partner with Bain & Co. and a specialist in technology supply chains, says the underlying issue is that fundamental demand has outstripped supply.
“In certain segments and technologies, the total demand is exceeding the total supply available, so we now face the even larger challenge of building more capacity — which will take three to four years and cost billions — instead of just reallocating within the existing capacity.”
