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To understand why the $ 450 billion semiconductor industry went into crisis, a useful place to start is a part of a dollar called a display driver.
Hundreds of different types of chips make up the world’s silicon industry, the brightest of which Qualcomm Inc. and Intel Corp. amounts to $ 100 for every over $ 1,000. They run powerful computers or the shiny smartphone in your pocket. A display driver chip is, by contrast, commonplace: its sole purpose is to transmit basic instructions for illuminating the screen on your phone, monitor, or navigation system.
The problem for the chip industry – and more and more companies beyond technology, such as carmakers – is that there aren’t enough display drivers to run. The companies that make them can’t keep up with rising demand, so prices are rising. This contributes to short consumption and increased costs for liquid crystal display panels, essential components for the manufacture of TVs and laptops, as well as state-of-the-art cars, airplanes and refrigerators.
“It’s not like you can handle it. If you have everything else, but you don’t have a display driver, then you can’t build your product, ”says Stacy Rasgon, who covers the semiconductor industry for Sanford C. Bernstein.
Now, the crisis in a handful of such seemingly insignificant parts – energy management chips are also in small quantities, for example – is cascading through the global economy. Car manufacturers like it Ford Motor Co., Nissan Motor Co. and Volkswagen AG has already reduced production, leading to fish estimates $ 60 billion in revenue was lost to the industry this year.
The situation may get worse before it gets better. A rare winter storm in Texas destroyed pieces of US production. A fire at a key plant in Japan will shut down the plant for a month. Samsung Electronics Co. warned that “Serious imbalance” in the industry, while Taiwan Semiconductor Manufacturing Co. he said he could not keep up with demand, despite the operation of the factories more than 100% of capacity.
“We haven’t seen anything like this in the last 20 years since our company was founded,” said Jordan Wu, co-founder and CEO of Himax Technologies Co., a leadership display driver provider. “Every application has no chips.”
The chip crisis was born out of a misunderstood calculation, as the coronavirus pandemic hit last year. When Covid-19 began to spread from China to the rest of the world, many companies anticipated that people would shrink as times got tougher.
“I cut all my projections. I was using the financial crisis as a model, “says Rasgon. “But the demand was very strong.”
The world is devoid of computer chips. Here’s why: QuickTake
People stuck at home started buying technology – and then continued to buy. They bought better computers and bigger displays so they could work remotely. They took their children new laptops for distance learning. They took 4K TVs, game consoles, milk fritters, air fryers and immersion blenders to make life in quarantine more enjoyable. The pandemic has turned into an widespread online Friday of Black Friday.
Car manufacturers were blind. The factories closed during the blockade, while demand collapsed because no one could reach the showrooms. They told suppliers to stop delivery of components, including chips that are increasingly essential for cars.
Then, at the end of last year, demand began to grow. People wanted to go out and did not want to use public transport. Automakers reopened factories and took the hat off to chipmakers such as TSMC and Samsung. Their answer? Behind the line. They couldn’t make chips fast enough for their still loyal customers.
A year of poor planning has led to a massive shortage of chip makers
Himax’s Jordan Wu is in the middle of a technology industry storm. One recent morning in March, the 61-year-old agreed to meet at his Taipei office to discuss the shortcomings and reasons why they are so difficult to address. He was eager enough to argue that the interview was scheduled for the same morning when Bloomberg News requested it, two of his employees joined in person, and two others called. He wore a mask throughout the interview, speaking carefully and articulately.
Wu founded Himax in 2001 with his brother Biing-seng, now the company’s president. They began to produce integrated circuits for drivers (for integrated circuits), as they are known in the industry, for notebooks and monitors. They became public in 2006 and grew with the computer industry, expanding into smartphones, tablets and touch screens. Their chips are now used in many products, from phones and televisions to cars.
Wu explained that he can’t do more display drivers, pushing his workforce harder. Himax designs display drivers and then manufactures them at a foundry such as TSMC or United Microelectronics Corp. Its chips are made on what is artistically called “mature node” technology, equipment at least a few generations behind the latest generation processes. These machines engrave silicon lines at a width of 16 nanometers or more, compared to 5 nanometers for state-of-the-art chips.
The downside is that these mature chipmaking lines are coming to an end. Wu says the pandemic has caused such strong demand that production partners can’t make enough display drivers for all the panels that go into computers, TVs and game consoles – plus all the new products that companies are introducing on screens, such as would be refrigerators, smart thermometers and car entertainment systems.
There has been a special tightening of driver IC circuits for car systems, as they are usually made on 8-inch silicon wafers, rather than on more advanced 12-inch wafers. Sumco Corp., one of the largest wafer manufacturers, reported that production capacity for 8-inch equipment lines was about 5,000 wafers per month in 2020 – lower than in 2017.
Nobody builds production lines with more mature nodes, because it doesn’t make economic sense. Existing lines are completely depreciated and fine-tuned for near-perfect yields, which means that basic display drivers can be produced for less than a dollar and more advanced versions for not much more. Buying new equipment and starting with lower yields would mean much higher costs.
“Building new capacity is too expensive,” says Wu. Colleagues like it Novatek Microelectronics Corp., also based in Taiwan, has the same constraints.
This shortcoming is due to an increase in LCD prices. A 50-inch LCD panel for TVs doubled in price between January 2020 and March. Matthew Kanterman of Bloomberg Intelligence predicts that LCD prices will continue to rise at least until the third quarter. He said there was a “huge lack” of display driver chips.
LCD prices are rising
Liquid crystal display prices rose during the pandemic
Bloomberg Intelligence, IDC
The worsening of the situation is the lack of glass. Major glassmakers have reported accidents at their production sites, including a site outage Nippon Electric Glass Co. in December and an explosion at the AGC Fine Techno Korea plant in January. Production is likely to remain limited at least until the summer of this year, said Yoshio Tamura, co-founder of DSCC Consulting.
On April 1 IO Data Device Inc., a major Japanese manufacturer of computer peripherals, has raised the average price of 26 LCD monitors by 5,000 yen, the largest increase since they began selling monitors two decades ago. A spokeswoman said the company could not make any profits without increases due to rising component costs.
All this was a business advantage. Himax’s sales are up, and its share price has tripled since November. Novatek shares gained 6.1% on Tuesday to a record high, pushing growth for that year to over 60%.
But Wu is not celebrating. His entire business is built around providing customers with what they want, so his inability to meet their demands at such a critical time is frustrating. He does not expect the crisis, especially for car components, to end soon.
“We have not yet reached a position where we can see the light at the end of the tunnel,” Wu said.
(Updates with actions in the third and last paragraph)