Earlier this year, it looked like the chip shortage would ease sometime in 2022. Now that prediction seems to have been optimistic.
“The shortages will continue indefinitely,” Brandon Kulik, head of Deloitte’s semiconductor industry division, told Ars. “Maybe that doesn’t mean 10 years, but we’re certainly not talking about quarters. We are talking about years.”
It is becoming clear that hiccups in the semiconductor supply chain are weighing on economic growth. Yesterday, both GM and Ford said missing chips led to lower third-quarter profits, and Apple is rumored to be slashing production targets for this year for its iPhone lineup, the company’s cash cow. Chip problems are so widespread that a division of Wells Fargo thinks the pressure will reduce US GDP growth by 0.7 percent.
Not an easy solution
As with many thorny problems, the causes of the chip shortage are numerous, and none of them have a quick fix.
First, people continue to buy new phones, tablets, and laptops and continue to use network-heavy services such as video streaming, video conferencing and more, increasing the use of data centers. “Demand continues to grow in general in almost all markets,” Kulik said.
That appetite has collided head on with a variety of supply shortages. Lately, substrates that make up printed circuit boards have become scarce. Compared to advanced semiconductors, PCBs have a relatively low margin and are easy to manufacture. Most chip companies don’t make them themselves, but without PCBs, semiconductors can’t talk to other chips in a computer. The companies that do make the boards don’t make a lot of profit that they can reinvest in expanding production.
To make matters worse, a fire at a major substrate factory in July 2020 took an important resource offline. As a result, PCB plant capacity is expected to lag behind demand in the coming years. The crisis has become so acute that Intel CEO Pat Gelsinger brought it up on his company’s most recent earnings call.
Even the world’s richest semiconductor manufacturers are flooded and are far from being able to meet demand. New fabs take years to build and optimize, and companies are hesitant to invest if they believe the surge in demand will be temporary. While demand is rising, it’s unclear whether it will continue after the pandemic. Companies are hesitant to invest in a new fab if there’s a good chance it won’t be up and running 70 percent of the time. Fables are just too expensive.
“If you hit 60 or 70 percent usage, you’re probably losing money,” Robert Maire, president of Semiconductor Advisors, told Ars.
Leading fabs cost about $5 billion – $10 billion, several times what they cost a decade or two ago. As manufacturing techniques have improved, the buildings themselves have become more expensive to build and the machines that make the chips have become more expensive. The latest tools use extreme ultraviolet lithography, which is necessary to produce chips with properties smaller than 7 nm, and they sell for more than $120 million.