January 28, 2021

The failure of auto companies to secure supplies of chips reflects widespread shortages in the semiconductor industry, and there’s no crystal ball on when equilibrium will return.

Two of the world’s top-three foundries, Taiwan Semiconductor Manufacturing Co. (TSMC) and United Microelectronics Corp. (UMC) said today that they’re running at full tilt, and the best they can do is to reallocate production to meet demand from global automakers like Volkswagen and Toyota, just to name a few. The carmakers will need to take a place in the queue behind big chip buyers like Apple and Qualcomm.

The situation has become so serious that the German government has asked the Taiwan government to urge TSMC and UMC to lend a helping hand, according to media reports. The futility of such a request should be obvious given that the Taiwanese companies answer to customers and shareholders as a priority.

Automakers are trying to rev up production after the coronavirus pandemic halted global economic growth and travel last year, forcing car companies to idle assembly lines. The chip shortage worsened after the administration of former US President Donald Trump slapped restrictions on Chinese chipmakers such as Semiconductor Manufacturing International Corp. (SMIC), which has been a supplier to Qualcomm.

“TSMC is addressing chip-supply challenges affecting the automotive industry as our top priority,” the company said in a statement today. “The automotive supply chain is long and complex, and we have worked with our automotive customers and identified their critical needs. TSMC is currently expediting these critical automotive products through our wafer fabs. While our capacity is fully utilized with demand from every sector, TSMC is reallocating our wafer capacity to support the worldwide automotive industry.”

UMC had a similar response.

“Despite the fact that UMC fabs have been operating at 100% utilization, we are aware of UMC’s key position in the auto supply chain,” the company said in an email to EE Times. “We are putting forth our best efforts to help the chip shortage within the automotive space, such as raising our 2021 capex for capacity expansion.”

UMC yesterday increased its capital expenditure budget for 2021 to $1.5 billion from $1 billion in 2020. In 2021, TSMC expects to invest between $25 billion and $28 billion in capex, compared with $17.2 billion last year.

In 2020, the coronavirus pandemic impacted the automotive market and car supply chain with customers cutting demand in the third quarter, according to TSMC. Orders rebounded starting in the fourth quarter last year, and shortages have emerged in mature nodes such as 40nm and 55nm, TSMC said.

Signs of widespread shortages

The shortage is tied to a scarcity of foundry capacity, particularly at mature and legacy nodes, according to Wedbush Securities executive vice president Matt Bryson.

“Higher content requirements for 5G (both for parts requiring leading-edge manufacturing like modems and ICs made on lagging nodes like power management ICs) has combined with increased phone shipments, higher PC demand, greater peripherals builds, etc, all of which have increased the load on foundry. Autos are in the same boat.”

Covid-related production cuts very likely cleaned out inventories before demand and production ramped up, exacerbating the supply chain issues in the automotive industry, he said.

The problem is that new foundry capacity takes long periods to come online, while portions of the component supply chain still rely on depreciated 8-inch wafer capacity, which is full, Bryson said. There does not appear to be a quick fix to shortages, and foundries are chasing a moving target as 5G solutions requiring higher semi content continue to ramp.

“Even with the accelerated investment, it’s not clear how long it will take for foundry capacity to catch up to demand, meaning a host of industries will remain short of parts with autos perhaps starting from the point of greatest constraints,” Bryson said.

It would be surprising if foundries can catch up with orders before the middle of 2021 given that the supply of PCs and peripheral equipment is so far behind demand, according to Bryson.

The double booking of chip orders by foundry customers that’s been typical during previous periods of tight capacity isn’t likely this time around, according to Bryson.

“I don’t think double ordering explains the current constraints or that there is necessarily ongoing inventory buildup that will lead to a collapse. Could conditions be less tight by the second half?” he asks. “Maybe, or maybe we end up in a multi-year cycle.”

The shortages may benefit a few automakers such as Tesla, according to an investor who spoke to EE Times.

Electric vehicle makers may gain a competitive advantage over combustion-engine car companies because they are better at managing their supply chains and have probably secured chip supplies ahead of the shortages, according to a fund manager who owns shares in Tesla. He requested anonymity because he is not authorized to speak on behalf of his fund.