According to Mining News Pro - Despite headlines to the contrary, we are not experiencing an end to the global semiconductor shortages. Based on market data and conversations with our customers, we expect the basic semiconductor market to be constrained well into 2023, at least; the market for complex semiconductors (microcontrollers, microprocessors and FPGAs, to name a few) will be tight throughout 2023. There has simply never been higher demand for semiconductors. Globally, the semiconductor industry is expected to grow by approximately 7% between 2021 and 2022, from $595 billion to $639 billion — the first time the market has reached this revenue milestone.
A few segments in particular are fueling the current spike: the growth of the Internet of Things (IoT), 5G and automotive, especially the electrification of the automotive industry. Throughout 2022, some previously strong drivers of chip demand — consumer electronics like smartphones and laptops — has slowed, creating issues for companies that now have too much inventory or the wrong inventory mix. Still, soaring demand in these other areas is creating shortages of the semiconductors necessary to their creation.
Like most unpleasant things in our lives over the past two years, there is a single underlying cause of the global semiconductor shortage that is now prolonging and exacerbating it: COVID-19. The demand caused by the pandemic is straining capacity at all points of the supply chain, starting with component suppliers.
What's Behind the Ongoing Global Chip Shortage?
The COVID-19 pandemic kickstarted the chip shortage, and its long-reaching effects — including virus outbreaks, labor challenges and geopolitical uncertainties — have fueled it. Each link of the global supply chain continues to be extremely disrupted. Unfortunately, there are no signs of recovery in the near term.
This is because the pandemic also spurred a snap back in growth and demand so remarkable and unpredictable that supply chains will struggle to keep up until that demand falls to a more manageable level or more capacity and component supply chain issues are resolved. All commodities initially saw demand drop precipitously with the onset of COVID-19 and the shutdown of factories. Then, the massive consumer spending we saw after the pandemic's initial shocks had settled created a V-shaped recovery of the global economy, spurring an extraordinary need for semiconductors. Now, we are facing chip shortages, unprecedented lead times from analog suppliers and huge price increases. Risk has been elevated to unparalleled levels all along the semiconductor supply chain.
Impacts from this sustained demand are primarily being felt at wafer foundries. Wafer starts are the main constraint within the chip supply chain. Even the world's largest chip maker, TSMC — which controls 28% of global semiconductor manufacturing capacity — is experiencing ongoing shortages. To ramp up chip production, manufacturers including Texas Instruments, Intel and TSMC are investing billions of dollars into the construction of new fabs. However, this is not a quick fix; these new facilities aren't expected to be production-ready until 2023 and beyond.
International governments have also joined the push to increase chip capacity. In July 2022, the United States Senate and House of Representatives passed the CHIPS Act, which includes about $52 billion in government subsidies for research and production of semiconductors in the U.S. The bill also provides chip plants with tax credits worth about $24 billion, with the goal of spurring U.S. chip manufacturing to alleviate some of the supply chain issues hampering the country's automotive and consumer electronics industries, among others.
The European Union is planning a "Chips Act" of its own to increase the production of semiconductors within Europe, while South Korea has committed $450 billion to its own industry, and the Japanese government is partnering with TSMC and Sony to open a new fab by the end of 2024.
Beyond wafer foundries, wire bonding, substrates, materials and testing are all seeing shortages or delays. In China, continuous COVID-19 outbreaks and heat-induced power outages have impacted the supply of raw materials and assembly and testing. Further, the invasion of Ukraine has increased the prices and limited the supply of raw materials used in semiconductor production, causing turmoil throughout key markets for the industry.
This continued mismatch between demand and supply is pushing lead times ever longer. As of summer 2022, lead times for most semiconductors — no matter the type — are running at least 40 to 50 weeks, with many in the 50 to 60-week range. Essentially no waits are shorter than 30 weeks, but most are far longer (70-plus weeks).
Analog chip suppliers are seeing an average book-to-bill ratio (the number of orders placed vs. the number of orders filled) above 1:1, indicating backlogs. High-end semiconductors like microcontrollers (MCUs) and chipsets are still constrained, with positive book-to-bill ratios, but the decreasing demand for smartphones and consumer electronics will allow manufacturers to catch up on orders for other industries. Most of these high-end components are in allocation, with average lead times running 52 weeks or more.
Impacts from this sustained demand are primarily being felt at wafer foundries. Wafer starts are the main constraint within the chip supply chain. Even the world's largest chip maker, TSMC — which controls 28% of global semiconductor manufacturing capacity — is experiencing ongoing shortages. To ramp up chip production, manufacturers including Texas Instruments, Intel and TSMC are investing billions of dollars into the construction of new fabs. However, this is not a quick fix; these new facilities aren't expected to be production-ready until 2023 and beyond.
International governments have also joined the push to increase chip capacity. In July 2022, the United States Senate and House of Representatives passed the CHIPS Act, which includes about $52 billion in government subsidies for research and production of semiconductors in the U.S. The bill also provides chip plants with tax credits worth about $24 billion, with the goal of spurring U.S. chip manufacturing to alleviate some of the supply chain issues hampering the country's automotive and consumer electronics industries, among others.
The European Union is planning a "Chips Act" of its own to increase the production of semiconductors within Europe, while South Korea has committed $450 billion to its own industry, and the Japanese government is partnering with TSMC and Sony to open a new fab by the end of 2024.
Beyond wafer foundries, wire bonding, substrates, materials and testing are all seeing shortages or delays. In China, continuous COVID-19 outbreaks and heat-induced power outages have impacted the supply of raw materials and assembly and testing. Further, the invasion of Ukraine has increased the prices and limited the supply of raw materials used in semiconductor production, causing turmoil throughout key markets for the industry.
This continued mismatch between demand and supply is pushing lead times ever longer. As of summer 2022, lead times for most semiconductors — no matter the type — are running at least 40 to 50 weeks, with many in the 50 to 60-week range. Essentially no waits are shorter than 30 weeks, but most are far longer (70-plus weeks).
Analog chip suppliers are seeing an average book-to-bill ratio (the number of orders placed vs. the number of orders filled) above 1:1, indicating backlogs. High-end semiconductors like microcontrollers (MCUs) and chipsets are still constrained, with positive book-to-bill ratios, but the decreasing demand for smartphones and consumer electronics will allow manufacturers to catch up on orders for other industries. Most of these high-end components are in allocation, with average lead times running 52 weeks or more.