‘It’s a Curler-Coaster Journey’: World Chip Scarcity Is Making Industries Sweat
Dan Rozycki, the president of a small engineering firm, worries about what a global semiconductor shortage could mean for concrete curing.
Mr. Rozycki’s company, Transtec Group in Austin, Texas, sells small sensors that are placed where concrete is poured on construction, highway and bridge construction sites. The devices measure the temperature and send data wirelessly so that employees with computers can ensure that the material cures properly.
Like many other things in the modern world, from computers and automobiles to cash registers and kitchen appliances, the sensors require a few common, inexpensive semiconductors that have suddenly become a very rare commodity.
“Our product is becoming more popular every month,” said Rozycki. “But we may not make it in a few months.”
The semiconductor shortage caused by pandemic disruptions and production problems in multi-billion dollar chip factories has sent shock waves through the economy. Questions about chips are rising among businesses and policymakers alike trying to cope with the world’s dependence on the small components.
Limitations in chip supply are anything but a new phenomenon. However, previous problems have typically involved certain types of chips, e.g. Such as the types that can be used to store computer memory or process large amounts of data. This time around, customers are also making an effort to find a range of simpler chips made in older factories. And these factories are difficult to upgrade.
President Biden ordered a 100-day semiconductor supply chain review in February. This process drew the CEOs of 19 large companies to a virtual meeting on Monday. Congress has backed laws aimed at boosting domestic chip manufacturing to reduce reliance on Taiwan and South Korea. Mr Biden has proposed funding $ 50 billion in his infrastructure plan.
The main focus was on the temporary closure of large US auto plants. However, the problem affects many other sectors, particularly the server systems and personal computers that are used to provide and use Internet services that were vital during the pandemic.
“Every aspect of human existence goes online, and every aspect of it runs on semiconductors,” said Pat Gelsinger, the new CEO of chipmaker Intel, who attended the meeting with the president on Monday. “People ask us for more.”
The chip shortage may affect almost every company that adds communications or computing capabilities to products. Many examples have been described in 90 comments submitted by companies and trade groups reviewing the Biden supply chain, including a laundry list of requirements from industry giants like Amazon and Boeing.
PC giant HP said the shortage of semiconductors prevented the company from meeting demand for school-ordered computers. Rising chip prices have also made it more difficult to provide affordable hardware to less affluent school districts during the pandemic, the company said.
Mr. Rozycki’s engineering office in Austin is one of the lucky chip users for the time being. It planned ahead and has enough chips to continue manufacturing the roughly 50,000 sensors it delivers to construction sites every year. But his dealer has warned him that he may not be able to deliver more of this until late 2022, he said.
“Will that stop these projects?” Mr. Rozycki asked. He searches the market for other traders who may have the two chips he needs in stock. Other options include redesigning the sensors to use different chips.
The supply problems are as varied as the nearly $ 500 billion semiconductor business. Manufacturers transform silicon wafers into chips in complex processes using chemicals, gases and expensive machines. Finished chips cross national borders dozens of times to partners who package, test and ship them to hardware manufacturers and distributors.
This year’s bottlenecks were exacerbated by episodes such as a fire at a Renesas Electronics chip factory in Japan, a drought in Taiwan and a cold snap in Texas that temporarily closed factories for Samsung Electronics, NXP Semiconductors and Infineon.
“Right now it’s hell on earth,” said Frank McKay, chief procurement officer at Jabil, who buys billions of dollars in chips every year to put together products for customers like Apple, Amazon, Cisco Systems and Tesla.
Every day, he said, his company is confronted with a shortage of around 100 components and has to use all of its bargaining power to maintain it – successfully so far. “But it’s a roller coaster ride every day,” said Mr. McKay.
Addressing other issues should extend to 2022. Mr. Gelsinger said Intel has been talking to auto industry suppliers about moving some of the production of their chips to older Intel factories, possibly in six to nine months. However, adding new production tools to an existing chip system can take a year. It takes three years to build a new one.
“This will be a long cure,” said Thomas Caulfield, general manager of GlobalFoundries, a major US chip maker that is doubling its investments this year to meet demand.
Currently, chip delivery schedules have expanded from around 12 weeks to more than a year in some cases, according to chip buyers and brokers. That’s bad news for companies like webcam start-up Wyze Labs.
“We will contact you when it comes to any bad news we received this week,” the company wrote in a January statement to customers. “Some of our main suppliers have told us that they can only supply about a third of the chips we need to make Wyze cams.”
The Kirkland, Washington-based company predicted storage issues for the third version of its flagship webcam. The company’s website said it was sold out and expected more inventory in a week or two. Wyze did not respond to requests for additional comments.
Supply issues can be a touchy subject, said Zach Supalla, general manager of Particle, a San Francisco company that buys chips for making communications and computing devices. The company sells its equipment to thousands of companies that manufacture products such as hot tubs, air conditioners, and industrial and medical devices.
Particles have so far secured enough chips to keep making their products, he said. However, the company is asking customers to keep ordering ahead to ensure that demand can be met, Supalla said.
If chips can be found, markups can be steep. One particularly nondescript widget, a type of ceramic capacitor usually sold for about 3 cents each, was hard to find When a Covid-19 outbreak temporarily closed a factory in China.
The shortage of capacitors affected the production of a popular cellular modem. This modem, which typically sells for $ 10 to $ 20, rose to $ 200 in the spot market, Supalla said. Customers like auto companies may be willing to pay such amounts to continue producing $ 40,000 cars, Supalla said. But not all can.
Some buyers suspect profit. Jens Gamperl, managing director of an online components exchange called Sourcengine, reported on a call from an executive who feared that a chip priced at $ 1 each was going up for sale on the exchange for $ 32. Mr. Gamperl had to explain that his own company was forced to pay $ 28 for the component.
“That’s the kind of weirdness we see left and now,” he said.
In addition to directly impacting hardware manufacturers, chip bottlenecks can reduce shipping and increase the cost of servers and network equipment to provide services such as streaming entertainment, remote learning, and medicine. They can also affect software manufacturers.
Tripp, a Los Angeles start-up that is developing a type of meditation app that uses virtual reality headsets from Sony and others, turned to the new PlayStation 5 to drive demand for software, said Nanea Reeves, managing director by Tripp. But chip scarcity helped hinder that console launch.
“We were expecting a bigger bump from the PS5,” she said. The company hopes more consoles will arrive in the second quarter.