"There are numerous other applications for semiconductors, but these represent the general trend. One cannot blame semiconductor companies for switching capacity to growing applications while automakers cut production (and presumably semiconductor orders) by 40% over two quarters. It will take time to resolve the shortages. TSMC stated it takes at least six months from semiconductor production to auto production and involves several links in the supply chain. Capacity can be shifted in the short term, but increasing overall capacity often requires construction of new wafer fabs, which takes about two years. Automakers gave up their place in line, so they will have to wait their turn for semiconductors."
Pretty much the only auto supplier that wasn't forced to move to just outside the automaker's own factories and on the tight chain of just in time. It was just acceptable to not highly integrate them, and oops. Maybe the automakers will make their own fabs. Which is what is really needed. But then again, we've been in a gut because of over production for years. So really, this is just automakers shifting the blame for the lack of demand of the last decade to someone that their stockholders are ok with blaming, because why admit your mistakes and fix them, when you can blame someone else?
> Maybe the automakers will make their own fabs. Which is what is really needed.
Seems like a massive investment in something that isn't their core competency (at all) for a 6-month disruption that hits ~once a generation+. It'd be a lot cheaper to just pay a foundry for reserved capacity, to stockpile a year supply of chips, or engineer cars to have more options for chips.
You mean open standards like the web, amp and floc where google controls 90% of the market ? Or the PC where wintel controls 80 % ? Who will be responsible when your google analitycs powered control unit will cause the airbags to deploy during driving ?
This is such a shame, companies sould be forced to design their infotainment system in order to let customer installing software from different vendors in it.
If Intel couldn’t keep up with the latest fabs I can’t believe an automaker could start from 0 and have any remote chance of success. Volume would be too low to make it work financially even if they could.
Old processes don’t disappear when the cutting edge manufacturers switch to smaller features. A lot of jelly bean parts, like the kind that go into a car, are made with larger features that are easier to work with. I think manufacturing is a core competency for automakers. While there are significant differences between car making and chip making, I don’t think you should discount an automaker’s ability to manufacture things.
> > I don’t think you should discount an automaker’s ability to manufacture things.
> Have you see infotainment UIs?
> Edit: my point was actually how bad they are. Carmakers don't do tech well.
Android UI and Win 10 are also terrible. And at least Win10 comes from someone who claims a lot of experience in this field (although some claim that they just stole the ideas).
High resolution displays everywhere running fancy 3D graphics, trying to emulate good old analog dials and controls in their responsiveness.
Many 2021 cars no longer have a single analog dial in them.
It’s all done by pushing a ton of pixels from a CPU that’s probably not older in process than 14nm.
Lots of industries have to plan for black swan events that hit once in a generation. But even then that's hugely optimistic. TPS/Lean has been in widespread use since what, the 80s? What happens when war breaks out, or we end up in a serious Geopolitical Conflict (Trade War), or run into another energy crisis or shipping crisis like what happened with the Suez Canal.
Owning your supply chain is a core competency. It's just that a few decades of relative global stability has allowed us to bury our heads in the sand in exchange for a few short-term optimizations.
Should they make their own tires as well? Mine their own ore? All parts of the supply chain are subject to external shocks. Increased vertical integration isn't necessarily the answer in all cases.
Having worked in the auto industry I can say this is the sort of thing was never, ever expected from a supply shortage. The frailty of the global supply chain network has been brutally exposed these last 14 months.
> The frailty of the global supply chain network has been brutally exposed these last 14 months.
I think it’s the exact opposite, supply chains have held up remarkably well. If I had believed some people here we would have been eating each other by now but apart from a shortfall in toilet paper things have been fine.
There were some shortages in Belgium that I didn’t expect. Like frozen broccoli missing everywhere for a week or two. Flour went missing for a month, probably due to panic buying. But otherwise, I enjoy fresh fruits, vegetables, and nuts which are definitely imported from somewhere.
There are odd disappearances from the grocery shelves from time to time. For example, one thing I’ve noticed is that outside of the trinity of Cola/Diet-Cola/Lemon-Lime soda, the availability of other sodas has been hit or miss for the last year. There have been others, less memorable because they’re more transient, but it’s more often the case that I’m likely to not be able to find product X at the grocery store in the last year than previously.
The reason for the soda thing is that there's been an ongoing aluminum can shortage for over a year (apparently it's still a problem), so they've had to focus more on the more popular core sodas and other varieties have been a lot more sporadic.
Here in Japan, There are now very little shortage for daily items but I found that Nestle Dolce Gusto is in shortage since April. That's imported from Europe and delayed by the canal accident.
EDIT: not trolling, i'm really curious. Fresh broccoli is available all year round everywhere and it is so much better than the frozen stuff. Why would anyone buy it frozen?
You can store it in a deep freezer without losing much nutritional value, which means it’s available on a whim without having to make a trip to the store. In many places that means you have it if you have a hankering without spending 1+ hr tracking it down first (typical if you’re not in an urban center or next door to a grocery store). I usually have some fresh broccoli stocked, but sometimes I already ate it. If you have kids, or are more remote (so it’s 2 hrs round trip or more), that is huge because you just can’t make that trip many times - too many other demands on your attention.
Definitely not. My local markets only sell fresh produce (that you can freeze yourself). You can only buy frozen food on freeze-specialized small shops or on large supermarkets.
I prefer the frozen stuff almost always. I can microwave it for 3 minutes, drain off a little bit of water, add in salt, pepper, and a tablespoon of butter, shake until emulsified and violá.
The only time I go for fresh broccoli is when making a stirfry or salads.
can you share what makes you think fresh broccoli is better than frozen broccoli?
I can see why fresh would be better if you were planning on eating the broccoli raw or perhaps steamed, but since I mostly use broccoli in soup or stir fries, it ends up fairly thoroughly cooked. In which case I don't believe I would notice a difference.
I purchase frozen vegetables (stuff like brocc, cauliflower, peas, carrots) because they come pre-chopped, last near indefinitely so I don't have to worry about finishing them before they rot, and whatever amount I want at that moment can just be poured out of the bag, pre-chopped, into whatever (usually single pot) meal I am making.
i only eat steamed broccoli (15min for the stalks and 4min for the greens), and the frozen variety never has the familiar "crunch". Maybe I tried only bad quality frozen stock.
Freezing breaks down cell walls (ice crystals form and puncture cell walls, faster freezer leads to smaller ice crystals leads to less breakdown). I'm not an expert but I suspect you may never get the crunch from frozen broccoli.
I think that I agree. I think the frailty of people, not supply chains, have been exposed. Oh man, you might have to keep your three year old car or two year old phone an extra year. Oh the humanity!
Probably there is no semiconductor shortage. You can still order promptly many advanced electronics that use similar parts quickly, GPUs notwithstanding.
Something happened to the people in China who take 10-100 electronic parts manufactured there and turn them into 1, to deliver to assembly in the auto’s destination for the purposes of tariffs (by reducing the count of imported parts from 100 to 1). Because of the weird mechanics of manufacturing origin, which definitely affects how cars and networking equipment have to be made, this is my hypothesis for why we’re only hearing about these issues from a very narrow set of industries and not others.
In terms of what could have happened my bet is it’s going to be pretty horrible.
When you expect your materials to arrive daily for that days production and keep almost zero inventory and relying on "Just in Time Delivery", then cancel all your orders overnight and then expect them to start again on whim, on the day you decide without any heads up to your suppliers...what could possibly go wrong? Can you imagine if Apple behaved this way? If iPhone sales drop one quarter, cancelling all their chip production until sales picked up again?
Auto manufactures are spoiled, they get anything they want whenever they want from the Government every time they start crying. Whether it's multi billion dollar tax breaks (Ford, Oakville, GM Oshawa, etc), multi billion dollar Gov programs (cash for clunkers) at the tax payers expense or being allowed to screw their suppliers for billions through bankruptcy (GM).
Don't excuse their poor management, forecasting, greed for frailty of the global supply chain. It's not like a asteroid hit Taiwan.
>being allowed to screw their suppliers for billions through bankruptcy (GM).
This is 100% of the issue. Those other two are issues with large business in general (tax breaks) or car dealerships (who pushed c4c).
The Big Three have been able to run their suppliers ragged through collusion because, for many suppliers, all they produce are car parts sold to The Big Three. Which means their production figures, profit margins, and general growth are completely at the whims of automakers. The few critical suppliers with a chance to get out of the industry are acquired.
The Big Three are learning the hard way that they don't have the kind of influence over chip makers that they do over their other suppliers.
It's convenient to blame automakers for what's happening in the semiconductor market right now, but I think it's an oversimplification. They're not the only ones affected by shortages, and about a year has passed since the rebound in new auto sales. The reality is that we need more semiconductor fabs because the shape of the market has changed. It's not just a perturbation from the auto sector. It's demand creation.
Those are separate issues. It is convenient to blame automakers for the chip shortages because they are 100% at fault here for their stupidity with the automotive rated semiconductor segment.
Additionally, their lack of planning and foresight contributed to the larger semiconductor industry going into a panic, causing a purchasing frenzy that dried up all the channels.
People in the larger industry saw what happened with the automotive semiconductor segment and went, well... maybe I should just keep 1 year of all my critical ICs on hand just to be safe.
I agree with you that we need more fabs, but they need to be thought of as (from a US centric viewpoint) national security assets. The reality is that if we want significant infrastructure, we need to do major investment from the US Government to ensure they are built here in the US. There are either production minimum guarantees, subsidies on the construction or operational costs to basically cover the costs of having excess capacity.
I think it's also disingenuous to continue to refer to increased demand as shortages because the implication is that there was a shortfall in production. The reality is that there was an increase in demand and limited capacity.
I think "shortage" means "scarcity," while "shortfall" means "deficit." Just because you have a shortage doesn't mean you have a shortfall whereby suppliers somehow failed. Of course, there have also been shortfalls....when a plant catches fire or production gets delayed due to power outages, that results in a shortfall.
Overall I'd say you're right. Capacity has so much inertia that it lags beyond the created demand. That isn't the fault of the foundries, it's just an artifact of unpredictable market behavior.
> Having worked in the auto industry I can say this is the sort of thing was never, ever expected from a supply shortage.
Having not worked in the auto industry, but having worked in the logistics industry, I and many many others like me have consistently warned about global catastrophes like pandemics causing unforeseen consequences of the kind we're currently experiencing.
To say that it's "frustrating" that nothing has been done before now, and nothing will likely be done - when I've literally written detailed reports complete with advanced statistical analysis for my upper management - is a massive understatement.
Hopefully the next pandemic will be severe enough that society itself is disrupted to the point where "rich" people suffer, perhaps even die. For many readers, this comment will come off as "morbid" or perhaps even be misinterpreted as a "call to violence", but in reality, this is simply "logical" behavior (survival instinct) that would result in a truly massive supply chain breakdown, and humanity as a whole doesn't learn a lesson unless there's unbearable suffering involved. I imagine a pandemic that kills 10% of the people it infects instead of 1% would cause sufficient pain for "elites" who very wrongly believe themselves to be above such inconveniences to seriously rethink their desire for "profits"... especially when a bunch of poor people who can't hoard food all raid their little compounds and the resulting unpleasantness that will result from such an outcome. It's unfortunate that I have to wish for such a thing to make people reconsider something as simple as warehousing additional supplies for unforeseen circumstances, but clearly we're there.
Glad I already got my 2021 F-150. There are lots in MI full of completed trucks awaiting chips. And looks like they're already planning temporary layoffs[1]:
I'm more inclined to believe TSMC and Intel than Cisco. They're closer to the problem.
"actually we see that demand continued to be high and the shortage will continue throughout this year and may be extended into 2022 also." C. C. Wei, TSMC CEO
"We expect it will take a couple of years for the ecosystem to make the significant investments to address these shortages." Pat Gelsinger, Intel CEO
Also, this is a deeply technical topic where BBC should cite engineers and industry veterans, not Dan Ives from Wedbush Securities.
Fire at a factory is not a force of nature, and it might be that the weather issue is also not a force of nature like we saw in TX. Sometimes saving money instead of investing in risk mitigation systems cause things to fail. I don't believe force of nature is behind the chip shortage unless we are counting on "to err is human" then sure.
Well lets be honest, while we are subject to the forces of nature, this particular time we mostly became a victim of the forces of the Texas devil may care mentality.
Cisco are also getting stung at the latest node. For their new line of Silicon One switch/router chips they decided to ditch their usual fabless partner (Broadcom?) and go direct to the fab (I think it's Samsung but not sure - doesn't really matter anyway). They did this to save money and also with the intention of producing their own merchant silicon to directly compete with Broadcom's. This would have been a great plan if there hadn't been a major 7nm capacity problem which resulted in the smaller players, such as themselves, not getting the wafers they need. I don't think there are any public reports of anyone using Silicon One yet (except Cisco themselves) but this won't help them win any orders.
The car industry might have something to do with it also but it's by no means the only cause of Cisco's concerns.
I’ve gotten burned by Cisco in a very similar situation. At this point they basically lean on their largest telecom customers to build their solutions for themz They moved to this model because the Comcasts / AT&Ts / Verizons around the world started looking at contracting with factories to build their own white-label network gear (when you spend $10 billion+ a year on network gear, this starts making sense). Cisco’s pitch is basically “give us all your requirements and we’ll build whatever you want as long as we have the option to sell it in the market”.
Never mind that Cisco is an absolutely terrible partner and the telecoms realized they were getting almost nothing out of the deal, so after a few years the big telecoms all dumped them and went with white label factories in China while working with American companies like Intel and Qualcomm on large component orders to supply the factories. Which left all the small and mid-size telecoms in the lurch for a generational upgrade they were expecting (which is a lot of why Huawei has so much market share in 5G).
To me it looks that following this chip shortage there will come a massive supply glut as all this manufacturing capacity comes online.
Maybe China and South Korea will be alright, as they can focus on the Chinese market in a world bifurcated by the US-China Tech war, but for the rest of the world, it seems that a supply glut is sure to follow?
Yes. This pattern has been repeating since the advent of mass-producing semiconductors. Most recently, 2016-2017, a new NAND technology emerged. Referred to as 3D NAND, it greatly increased bit-density and reduced cost of NAND flash. Samsung, Toshiba and to some extent Micron all decided they were going to lead that massive market. Moreover, the 3D NAND required many more layers and therefore more 'equipment per chip'. These three bought new equipment it required in record amounts. You'll see companies like Lam Research with revenue spikes in 2017.
2019, though, not so much. All the capacity came online at the same time, there was oversupply, the price of 3D NAND plummeted, and the chip companies pulled back buying dramatically, sending the equipment suppliers from feast to famine, again.
I recall a 2-year period in the late '90s where the San Jose Mercury News headline in August read '1,000 Jobs Open at Lam and Applied' to one year later, 'Lam to Lay Off 1,500'.
I've worked in, and on the periphery of the semi world for much of my career and can second this. Not oy for direct employees but also the huge world of contractors and sub contractors that supply engineering services and equipment to the semi industry. It's very much a boom and bust industry, with huge swings from everyone is busy as could be to everyone is looking for work. It's difficult because many of the skillets and manufacturing processes for these systems are mostly specialized to this industry.
I wonder what parallels can be drawn to the mining industry which is also very boom and bust due to cyclical nature of commodities prices and the lead time in bringing new supply to market
The challenge is that to design a new line, or production cell, or process they need a broad range of expertise that is very specialized. For example, they may need folks that are phds/experts in plasma deposition/sputtering/etc. to do a bunch of multiphysics computer simulations to get the operation in the chamber right. Then they need folks with expertise in building the chambers, and associated cryo pumps, then they need robotics experts to architect, design and implement all the automation, chemical engineers for all the crazy chemistry going on, etc. It would be very expensive to keep all those folks on staff, and even harder to keep them all busy.
I view it like the construction industry. I worked as a concrete/asphalt inspector for my local municipality in college and the cycles of the road repair industry are similar in my mind. In this world there are lots of "crews" that travel around the country following the work. They start in the south in the winter, and gradually work their way up to the north as the ground thaws and road construction can be done. They usually have a 2 week - 2 month contract in each town and then move on. No one area has enough work to keep them busy for a season. The industry is built on that ability to maximize work/profit and minimize downtime by moving from customer to customer as the work does also.
I view it as similar for many of us who do/have worked in semi. When there is a glut of work, it's all good. When there isn't there are hundreds or thousands of highly skilled, highly specialized folks needing work. Those folks/consultancies typically are able to pivot to other industries that need the same skillets readily and easily (like medtech, aerospace, automotive, etc.) and keep working during the slow period for semi. The alternative would be for semi equipment designers/manufacturers (like ASML, etc) to rely more on in house permanent workforces and less on contractors and subcontractors but I fear a fundamental change like that may not be sustainable from a cost standpoint. These companies already have huge swings in their workforce numbers every few years, often hiring or letting go hundreds or thousands at a time.
It depends, if you are upgrading machines to produce smaller (5nm instead of 7nm) then you lose some productivity as you get lower yields. But many of the companies are adding totally new semiconductor equipment and not removing the older once. That being said, the massive chip shortage is across the entire spectrum, including the bigger older chips.
Nobody is scrapping old equipment when they move to a new node. The equipment just gets sold to whoever is one rung down on the pecking order, to keep producing parts at a lower profit margin. Early 2000s processes are still in extensive use.
South Korea, I don't know. The spike in equipment purchase certainly sticks out, maybe they (SK) expect to be able/allowed to supply the Chinese companies, that Taiwan can't/won't?
I still don’t really grasp what factor causes this general shortage across all chip producers and nodes. Why is a spike in demand for pc cpus and gpus causing a shortage in other chips that might be using older nodes? Are there some underlying other constraints under chip production that is causing a ripple effect up the supply chain?
I find it ironic that TSMC is building their shiny new 1100 acre fab in Arizona of all places [1], even as one of their main water sources is drying up [2]. You’d think someone in charge is thinking about these things.
Arizona has fab construction expertise, engineers and cheap workers.
You have to put your new fab someplace useful or you have to import everybody.
So, that cuts the number of places to a handful in the US.
Texas, because TI, AMD, NXP nee Freescale nee Motorola. Idaho, because Micron. Oregon, because Intel. Arizona, because Intel and NXP. New York, because IBM. California, because everybody.
If you're not doing massive R&D at the fab, you want cheap workers more than you want location to universities. That knocks out California and New York.
As we just found out, Texas has weather so maybe not a great place for a 24/7 fab.
Can you imagine TSMC personnel dealing with winter? So, probably not Idaho.
So, Oregon or Arizona. I suspect Oregon is more expensive than Arizona in the places you want to put a fab.
Why is that? I would expect chip production to be a relatively small scale process compared to almost any other industries, simply due to the small amount of material involved.
For example, how many CPU dies can you fit in a shampoo bottle or a pack of printer paper?
I can't say for certain, I am guessing they may use it to clean in between layers (additive and subtractive)? This article[1] supports the high water use but does not explain in greater detail to what ends it is specifically used.
Yes. The CPU and GPU demand has nothing to do with it. The reason is the car industry.
For some reason in early 2020 all the car industry execs were convinced that people would buy dramatically fewer cars in 2020, due to pandemic crashing demand. Because they have a religious aversion to holding any stock they decided to shift the risk over to their suppliers, fucking said suppliers over, as the car industry normally does when they expect demand shifts. The thing that made this particular time special as opposed to business as usual is that the car execs all got it wrong, because people bought way more cars due to pandemic rather than less, due to moving out of cities and avoiding public transit. So they fucked over their suppliers a second time by demanding all those orders back.
Now, suppose you're a supplier of some sort of motor driver or power conversion chip (PMIC) in early 2020. You run 200 wafers per month through a fab running some early 2000s process. Half your yearly revenue is a customized part for a particular auto vendor. That vendor calls you up and tells you that they will not be paying you for any parts this year, and you can figure out what to do with them. You can't afford to run your production at half the revenue, so you're screwed. You call up your fab and ask if you can get out of that contract and pay a penalty for doing so, and you reduce your fab order to 100 wafers per month, so you can at least serve your other customers. The fab is annoyed but they put out an announcement that a slot is free, and another vendor making a PMIC for computer motherboards buys it, because they can use the extra capacity and expect increased demand for computers. So far so normal. One vendor screwed, but they'll manage, one fab slightly annoyed that they had to reduce throughput a tiny bit while they find a new buyer.
Then a few months later the car manufacturer calls you again and asks for their orders back, and more on top. You tell them to fuck off, because you can no longer manufacture it this year. They tell you they will pay literally anything because their production lines can't run without it because (for religious reasons) they have zero inventory buffers. So what do you do? You call up your fab and they say they can't help you, that slot is already gone. So you ask them to change which mask they use for the wafers you already have reserved, and instead of making your usual non-automotive products, you only make the customized chip for the automotive market. And then, because they screwed you over so badly, and you already lost lots of money and had to lay off staff due to the carmaker, you charge them 6x to 8x the price. All your other customers are now screwed, but you still come out barely ahead. Now, of course the customer not only asked for their old orders back, but more. So you call up all the other customers of the fab you use and ask them if they're willing to trade their fab slots for money. Some do, causing a shortage of whatever they make as well. Repeat this same story for literally every chipmaker that makes anything used by a car. This was the situation in January 2021. Then, several major fabs were destroyed (several in Texas, when the big freeze killed the air pumps keeping the cleanrooms sterile, and the water pipes in the walls of the buildings burst and contaminated other facilities, and one in Japan due to a fire) making the already bad problem worse. So there are several mechanisms that make part availability poor here:
1. The part you want is used in cars. Car manufacturers have locked in the following year or so of production, and "any amount extra you can make in that time" for a multiple of the normal price. Either you can't get the parts at all or you'll be paying a massive premium.
2. The part you want is not used in cars, but is made by someone who makes other parts on the same process that are used in cars. Your part has been deprioritized and will not be manufactured for months. Meanwhile stock runs out and those who hold any stock massively raise prices.
3. The part you want is not used in cars, and the manufacturer doesn't supply the car industry, but uses a process used by someone who does. Car IC suppliers have bought out their fab slots, so the part will not be manufactured for months.
4. The part you want is not used in cars, and doesn't share a process with parts that are. However, it's on the BOM of a popular product that uses such parts, and the manufacturer has seen what the market looks like and is stocking up for months ahead. Distributor inventory is therefore zero and new stock gets snapped up as soon as it shows up because a single missing part means you can't produce your product.
So here we are. Shameless plug - email me if you are screwed by this and need help getting your product re-engineered to the new reality. There's a handful of manufacturers, usually obscure companies in mainland China that only really sell to the internal market, that are much less affected. Some have drop-in replacement parts for things that are out of stock, others have functionally similar parts that can be used with minor design adaptation. I've been doing that kind of redesign work for customers this whole year. Don't email me if you work in/for the car industry. You guys poisoned the well for all of us so deal with it yourselves.
My dad was in manufacturing. He always told the car companies to fuck off because of this. If you start doing business with a car company, the bullying starts right away. You eventually are forced to choose between them and your other customers. It’s probably best to just never start down that road if you can avoid it.
My company refuses to work with automotive primarily because of the billing. They require you to front the money for all R&D, and tooling, and then they literally pay whenever they want for actual delivery (they completely ignore invoice terms such as Net 30 days - and will pay at 60, 90, or 111.8843 days)
They’re not the only ones to do that, but yeah, they have a rep. I’ve heard of FIAT (now Stellantis) routinely paying suppliers 3 to 6 months after a contract is fulfilled. Absolutely ludicrous.
It's actually worse for us since we are capitol equipment suppliers. It could literally be 3-4 years before we get paid since they won't pay until the equipment has a proven production rate/quality/other random metric. They will find just about any excuse to not sign off the IQ/OQ/PQ and if there are any delays in other equipment, or materials, or whatever then they don't pay.
This sounds a lot like how big distribution chains work around here... Maybe it's a thing with economies-of-scale-based businesses. Like 'we'll be moving MILLIONS of your gadget but you'll have to sell your and your employees' and providers' souls. And self-respect.
If they know they can get away with their suppliers having to front all the cash, why not do it? If all their competitiors get away with it, they'd be fools not to as that is a lot of expense and interest they're eating and they'll need to make up for that somewhere.
Yes. And still not everyone wants to work for them. I'd sure never ever ever try to sell them anything... I'm thinking with such reputations they get shafted out of good opportunities and this has a cost. I'm not sure how Costco treats their partners & providers but I'd guess they're still shrewd without bullying and sell better quality. I know the business model is different but clearly there's room and money to win in other ways.
Very interesting breakdown. It sounds to me like the core of the problem is that everyone needs fab slots to build their things, but fab slots are a limited resource and car manufacturers have bid up their price to levels few others are willing to match. Does that seem about right?
No, that's wrong. Fab slots are not a limited resource (except at the very high end). They just have a lead time of 12-18 months and it takes a lot of time and a lot of lost production to change what they produce any faster than that.
The way your original comment phrased it I assumed phab slots are not actually locked in 12 months in advance, and if you pay someone enough they might agree to swap the masks they were going to use for yours. That would mean fab slots are acting like a scarce resource in the short term (3--12 months?). Is that also not right?
I'm not saying the system isn't broken and/or that car manufacturers aren't jerks for monopolizing a scarce resource and putting other demands in tight spots. I'm just reading it as regular free market capitalism level broken, but it sounds like you're saying it's even more broken than that. This is a topic very relevant to my current interests so I truly do wish to understand it.
There is a cost to switching, and a time delay. If you switch faster than the optimal interval, you lose some of the stock that was in-process. Because of this, a large industry changing their mind back and forth rapidly with a particular alignment to that interval can cause disproportional disruption. This is happening here. They changed their mind on short notice, causing one wave of disruption as everyone adapted, then they changed their mind on short notice again in the opposite direction, causing a second, even bigger wave of disruption on top of that. Suppose you were on a plane from London to Dubai, and someone tells you to get to New York as fast as possible. You can't turn the plane around, so you wait until you're in Dubai and take the next plane in the opposite direction to New York. But halfway there you get a phone call saying you need to be in Singapore instead. Again, you have to wait until you land before you can do anything about it, and your entire current trip is wasted. Getting from where you were originally headed (Dubai) to your ultimate destination (Singapore) is a short trip, but by timing the instructions at especially inconvenient moments, you end up having to add enormous cost and resource waste to reach the same target. The car industry is definitely paying for their fuckup at the moment, but everyone else who uses electronics is stuck on that plane with them going the wrong way.
Ah, okay, that makes sense. Do I get it right that there are then essentially these two additional problems going on here, beyond short-term slots being a scarce resource:
- When manufacturers change their minds quickly and pay the price to buy up a lot of slots last minute, they are effectively also "burning" some slots that will simply no longer add to worldwide production of anything? and
- Being such a big customer with a high variance in demand, the car industry have are making it nearly impossible for the rest of the market to make rational decisions based on long-term forecasts?
(It might sound like I'm stating the obvious here but I know how often I think I understand something but later turn out to have missed the mark completely anyway.)
here's the wafer agreement that i found between TSMC and Altera. there's probably more to this. i think auto maker's chip suppliers didn't sign the wafer agreement with fabs.
" 5.12 ADJUSTMENT IN CAPACITY RIGHTS AND OBLIGATIONS. Unless otherwise
agreed in writing by the Parties, any adjustment in the Buyers' Percentage
Interests which results in a change in their Adjusted Percentage Interests (as
defined in Subsection 1.1.3), shall not become effective for purposes of the
Buyers' Basic Purchase Shares until the thirteenth (13th) week after the date
upon which the adjustment in Percentage Interests occurs pursuant to the LLC
Agreement, and unless agreed otherwise by TSMC and each Buyer under a Purchase
Order, no such adjustment in Percentage Interests, when so effective, shall
operate to cancel, amend or otherwise affect any Purchase Orders accepted by
TSMC prior to the date that such adjustment in Percentage Interests is so
effective."
I think what you write maybe is what has broadly been going on (across all industries - not just cars). Sudden drop in demand followed by a sudden surge in demand. Plus disruption is suppliers ability to deliver (due to lockdowns and border closures).
It is somewhat the same story as being described here - which is an article about a company that makes display drivers:
I hate cars for so many reason already, and here you are telling me that they are literally squeezing global production of chips too. Cherry on top.
I really want us to stop being so obsessed with cars, because no matter how useful they are to transportation, in my mind they just can't be worth the pain and damage they cause to our society...
I also hate cars for so many reasons but surely "their manufacturers run an efficient operation and can outbid competitors for a scarce resource" isn't one of them?
That's not the case here - the case is that they are big and powerful enough to bully suppliers so that suppliers assume a lot of the risks that any normal-sized company with fewer political connections would have to assume itself.
From your original comment I gathered that they "will pay literally anything" for you to swap the mask in your remaining 100 slots. That sounds to me like regular free market-enabled bullying.
Are you saying it's a different kind of bullying? What makes it different? You original comment really piqued my desire to understand this.
Customized car parts are often a major part of a subvendor's revenue, but they are stuck in a monopsony situation - nobody but audi will buy an audi rear seat height adjustment lever. The market power of large automakers mean that they can very quickly become the primary revenue source of a small vendor, and there's no collective action that various vendors can take against the automaker. The automaker can then get away with conditions like having the vendor pay massive penalties for not delivering a number of parts within a 15 minute time window, changing delivery volumes on short notice, or payment terms where they pay for parts months and sometimes years after they are delivered, and the vendor has to sit on their costs in the meantime. The vendor can't afford to lose the automaker as a customer, but they also can't afford to have enough margin to swallow a back-and-forth variation in demand without adjusting production volumes. In this case, the automakers ended up in a tight spot because they had fucked over all their vendors in this way simultaneously, and so ended up in a situation where their production lines were literally standing still because the vendors could not deliver as they had just finished adjusting to the previous change. This is when the automakers shifted to offering way-above-market money for product, because the alternative was massive losses from stuck production lines.
Oh. You're saying they normally wouldn't pay the cost of the mask change, only say to their vendors "do it and absorb the cost or we'll pull our business?"
What a great comment. Does anyone know if Tesla went the old automaker way or do they stockpile chips and/or had better forecasting on demand during pandemic? It seems their production is doing great.
Selfish reason, I want to know if my Tesla order will be delayed.
I'm not 100% certain, their suppliers could concievably have been affected by the same problems everyone else has. But my impression from following Tesla's quarterly reports before and during the pandemic is distinctly that they just kept plowing on, business as usual. No changes in production or their investments for production capacity, apart from production delays due to government-mandated shutdowns.
Hard to underestimate the impact of Musk's leadership when you see that result.
I agree it's sad to see things disrupted/destroyed, but it certainly lit a fire under a ton of people who have the power to make dramatic shifts. I think this will mark the beginning of a new era in semiconductor abundance and innovation.
My dramatic shift - never work on a project that helps the car industry. They're now on the same shitlist as weapons, coal, and surveillance capitalism.
It seems overly naive to assume any company's actions don't have pros and cons, or aren't part of the larger society/ecosystem you're enabling by existing? You can't take an action (or exist and take no action) without a side effect, and at the scale of any significant company, it is impossible to do what someone somewhere considers to be harm to someone or something.
Picking and choosing the scope, scale, and amount of the type of harm you're comfortable with certainly seems worthwhile, but pretending there is any option that is harm free seems like self deception. Even refusing to play (not living?) has side effects most would consider harmful - at least to those around you.
That is a good point. Perhaps a different statement makes more sense: it's hard to believe that there are no options where the benefits outweigh the harm.
In my experience, the benefits do outweigh the harm in pretty much all cases where it lives awhile - if you pick the right group of people to care about, and the right things or people to be ok harming.
We all do it, directly or indirectly. It’s necessary to survive. It’s common for instance to not worry too much about the earthworms dying on the sidewalk after the sprinklers run. Most people would consider someone pretty weird if they didn’t drive because of the body count of insects on their windshield.
For example - everyone who drives is implicitly or explicitly saying the benefit to them outweighs the harm to those insects. Everything has a trade off.
Most life survives by eating other life (yes even Vegans), and even pure photosynthetic algae has to kill or crowd out (and starve) competitors and things that would kill and eat it, or they would no longer be alive.
It’s easy to be isolated from this reality, especially with modern life meaning we don’t need to gather, raise and/or kill our own food.
Nature is not (just) a national park with carefully curated trails and animals to snap pictures of when they grace us with their presence. It’s wild fight for survival and dominance - full of growth, birth, gore, beauty, and death.
Recognizing that someone’s trade off to make another country less strong (a ‘other’) in exchange for making themselves richer or their country more capable of doing the same in the future is important (one example) - say a defense contractor making a new weapon.
It is a specific mindset and trade off that we might not agree with it even find repugnant, but it is keyed off important survival needs and a fundamental part of the world and nature we are foolish to ignore.
What do you consider ok to harm, to get the benefits for the people or things you care about? At some point it might be worth making it concrete, it can be illuminating.
My point was not about nature though, rather it was about being sustainable. Looking at the classic prisoner's dilemma, there are activities which bring localized benefit, but an overall loss in a non-zero-sum game.
Presuming that human activity is not zero-sum regarding whatever system of values we take, it's clear cut that some activities are bad, period.
This makes the grandparent's examples clearer: coal production benefits some people now but hurts future generations disproportionately. Wars hurt all sides, and allow some of them partially recover, and never as far as if they joined forces. Car companies throw the whole semiconductor industry under the bus in exchange for not having to keep inventory.
In a huge simplification, it's self-destruction I'm talking about, not sacrificing little things to gain greater ones, like exchanging the lives of insects to feed a human cvilization (presuming you value humans more).
Of course, it's possible to construct an arbitrary system of values to justify your own arbitrary deeds as "survival" or "natural", but I don't find such systems convincing.
Nature is the only known example we have of a sustained environment, no? Everything else is artificially constructed, and no social or artificial environment I know of has lasted in any meaningfully sustained and stable way for more than a few generations.
My point is that you are constructing your own arbitrary system relying on projections of the results of actions far into the future, and impacts that are purely hypothetical at this point - they might be true/accurate, or they might not. Someone is staking their own success or happiness based on if they think it’s true or not, and I can point you to many examples in the recent past where that was a severe evolutionary negative for many people.
Prisoners dilemma is a thought experiment/theoretical problem because in the real world, what people value, their own understanding of and perceived trustworthiness of others, and their own dispositions and habits means it might as well be talking about spherical cows.
If we get into a shooting war with China next year for instance, global warming is going to be pretty low on the problematic outcomes one could face. If a pile of coal (or billion barrels of oil) is what it takes for the US (or China, or any other nation) to survive, they will burn it without a moments hesitation.
We can all hand wring about if that hurts the global balance, and how it’s terrible, and game theory and all that - but if it’s a fight for dominance, survival, and resources it won’t matter. So far we’ve found enough common ground/everyone is getting rich enough helping each other out it hasn’t come to that. We can hope it never will.
Pretending that folks who are building tools, or capabilities, or working in the areas that would be necessary to survive if something like that happened seems willfully ignorant of the reality we’re in or incredibly naive, IMO.
Some folks make short sighted choices, lose a ton of money, screw people over (intentionally or not), etc. In my experience it’s usually due to environmental factors (regulation, market, competitive forces) strongly incentivizing it, or just plain not being able to predict the future.
That chaos and dumbness is not only inevitable, it happens everywhere. It’s fundamental to the human experience. It’s easy to be high and mighty, much harder to do it differently - and survive.
> Nature is the only known example we have of a sustained environment, no?
No, not really. Looking at the large scale, the Earth will burn up together with the Sun, and then we'll reach the death of the universe one way or the other.
Small scale, we have sustained businesses, economies, families, ecosystems. In those, prisoner's dilemma is real and testable.
I'm getting the impression that you're trying to draw some equivalency between all classes of harms, regardless of their magnitude. I do agree to a certain extent, but I can nary see an argument that would convince me that some options are just not singularly harmful.
As an example, me and my neighbour being paid to grow a field, at the cost of the field insects, versus me and my neighbour being paid to drive each other away and take over the land. One is clearly better than another if human well being is more important than that of insects.
If we fear the neighbour fighting us and we value survival, we must fight ourselves. That's the curse of the prisoner's dilemma, because giving up the fight yields a better outcome. I would call such a greedy "survival" approach naive and unfortunate.
If we value dominance above all, then fighting the neighbour is the better choice. I believe we have a word for such value systems: egoism.
Giving up the fight yields the better outcome only when the other party doesn’t come over
and eat you or kill you no?
It isn’t about dominance over all - it’s about survival and the complex intertwining of all the various strategies (good, bad, failing) being tried simultaneously with the hope that theirs wins. Sometimes it’s domination. Sometimes it’s teamwork. Sometimes it’s passivity.
As any individual player, you have to pick one - and sometimes it wins, sometimes it loses. Most strategies exist not because they are always ideal, but because having the selection is essential and necessary to long term survival in a fundamentally unpredictable environment. A species that only does one strategy at once is going to go extinct when the environment changes suddenly.
I’m definitely not equating all actions as equal, or saying everything has equal cost. I’m noting that nothing, including no action, has no cost, and that assuming a player in the game (you or someone else) will definitely lose or definitely win for a given survival criteria has a very low degree of predictive accuracy in the real world.
Of course, you're right about survival. Sometimes the rational strategy is to fight. What I'm contesting is the view that predicting outcomes is useless.
I gave the example of economies and ecosystems together with prisoner's dilemma to illustrate that we do indeed have a models that are accurate in predicting at least first order effects.
First order effects are not everything, of course, but it doesn't seem sensible to throw away our knowledge coming from game theory (or cybernetics? or plain life experience) and settle on not being able to predict which choices are net positive and which are net negative.
As with any estimation, there will be those that can't be evaluated with any certainty, but also clear winners and losers.
I work in this industry, I talk to vendors, I see this stuff daily. If you want the manufacturing-side background, nikkei's semiconductor news has lots of material on this ( https://asia.nikkei.com/Business/Tech/Semiconductors/ ) including the fabrication disasters that ruined NXP and Renesas. Go through the last few months to see it unfolding. For the other stuff, I can't give you public evidence, but I've been working with customers adapting their designs, and they've had confirmed orders from manufacturers delayed or cancelled, some citing prioritization of the car industry, others not giving any reason, but then auctioning their remaining stock out, with the final bids going to automakers at 8x the 2019 price. Microchip, a major vendor, introduced a program where they will provide prioritized product a year from now in exchange for non-cancelable non-refundable month-by-month demand visibility into the future ( https://www.microchip.com/content/dam/mchp/documents/announc... ). I don't know what sort of link you need, this is literally what I do every day.
Interesting. Other estimates had put it in the “upwards of a year” territory [1,2] so to me this 6-month estimate seems optimistic.
Samsung only recently (end of March) got their fab up and running close to production levels. NXP was a bit faster on the draw, but even still there are likely to still be more issues than normal.
At the end of the day, not much to do except hope for the best and expect the worst.
We often talk about the auto industry as a whole screwing up but I wonder if there's an automaker out there that didn't follow this trend and is doing fine.
They seemingly learned from a few other supplier disasters over the last decade, and were better-prepared to deal with shortages of critical parts from their vendors.
One of the large problems is a shortage of some common part that is widely used.
I recall when 74LS245 were selling for over $100 each to people with $500,000 machines that needed that part. During that shortage we actually built small boards with 3-4 lesser chips that fulfilled the need for the part. When a genuine 245 was obtained, it could be easily swapped in, but many machines lived out their full life with this kluge in it. That one series of chips built Future into the colossuss it is today because they had the smarts to get their engineers to spec in that family (and many others) and Future booked huge orders with Japanese suppliers and enjoyed huge margins. ClassIC did the same thing later. Now Asia dominates.
Dumb question: automakers do relatively simple things with their chips. Is there room on wafers with more advanced chips to squeeze in automotive chips?
Nope. Since most manufacturing steps are performed on an entire silicon wafer at once, the cost per chip is cheaper if there are more chips on each wafer. As a result, wafers (for both basic and advanced chips) are filled with rectangular chips packed as tightly as possible (and when designing chips, prices are often talked about in units of "price per area of silicon"). Images from a web search for "semiconductor wafer dicing" illustrate this [1].
I don't think it's simple things, vehicle has around 60 to 100 sensors on board, some might have even more, they also have infotainment which is tablet-like level of hardware, imaging all different things they have to handle, and how reliable it have to be.
The biggest problem is everything is JIT so all supply chains using JIT (like all of them) get disrupted with as little as 10% variance from the media flow rates. The only real answer is to relax the reasons why we have JIT: taxes on inventory which prevent accumulating safety stock inventory. Having larger safety stock would very quickly end this supply chain disruption and solve the chip shortage in few months rather than 6-24 months.
So kind of... operationally with JIT you're encouraging yourself and suppliers into figuring out how to lower batch sizes and lead times so that the supply chain can be more nibble and financially the biggest benefits to JIT are working capital reductions because you don't have to buy in giant increments.
Both are issues. In most states the property tax applies to all physical assets of the business. So they have to pay taxes on all their furniture, manufacturing equipment, computers, and yes any inventory they have sitting around.
Property taxes are a rounding error compared to the value of even a small warehouse full of modestly priced consumer goods, talking far less than 1%, especially in industrial areas.
It might be a factor in very low priced bulk goods like gravel or something, but I would be shocked even then.
"As shown in the map, nine states (Arkansas, Kentucky, Louisiana, Maryland, Mississippi, Oklahoma, Texas, Virginia, and West Virginia) fully tax business inventory, with five additional states (Alaska, Georgia, Massachusetts, Michigan, and Vermont) levying partial taxes on business inventory."
Even if we fixed it today, it's unlikely to end this supply chain disruption - it will likely make it worse, as now that companies can't avoid facing this problem they have to get more stock in order to build a buffer. Making it easier/cheaper for them to build a BIGGER buffer just means more hoarding/supply chain shocks until everyone has enough of a buffer they stop trying to hoard/buy extra.
The issue is that when you become brittle supply chain wise, the only real answer is to stock more/buy more individually - which crushes the supply chain even more. Either that, or co-ordinated (gov't level often) rationing, which has it's own problems.
Authoritatively stating that inventory taxes are the reason for JIT won't make it the truth. Read a bit more for why Toyota actually came up with the concept. Inventory management is about efficiency. Even if entirely and completely untaxed, you want JIT to make sure your production is not over capacity and you aren't wasting money.
Inventory taxes inform the decisions of every business I have done work for. Without the taxes we would carry a few months of parts. But we can't. It's too expensive.
This was not a black and white statement. You need to read better. I said JIT was not created for the sake of inventory taxes. JIT doesn't exist just for the sake of inventory taxes either. Why would someone tax small stocks of inventory enough to justify pure JIT?
The bigger reason is to turnover your inventory faster and use cash more efficiently. The most basic of finance education would tell you about this. There are measures of this called inventory turnover, just as there are measures for turnover on many many things inside a company that gives an idea of how efficiently they use cash. I have never in my life seen a financial model on the face of the planet consider inventory taxes primarily because they're a non factor. Income taxes are a much bigger factor.
I have read about the original case for JIT. Toyota and others, for example, do not hold the parts but bully their suppliers into holding them. They implicitly recognise the need for maintaining inventory but have forced someone else to bear the costs of maintaining it.
HN is not usually biased against taxes which is the subtext I see in your original post. There are bad policies and unintended consequences to some taxes.
Ah no. My subtext was complete idiocy of HN on anything outside the immediate area of computing and software. Not about taxes in particular. I don't hang out around here often enough to recognize bias within specific topics.
One of the things that turned me off of using Amazon for fulfillment when I was trying to run a barely ramen profitable hardware startup was that I might get stuck filing property taxes in a whole bunch of states. That and I was so broke that I could only afford to ship one box of inventory to one destination, and they insisted on splitting into multiple different warehouses.
Can you show a jurisdiction that bad inventory taxes please?
there is a phrase inventory tax that means unnecessary overhead but I’ve never come across an actual governmental inventory tax in any country or us state.
Anywhere in the US. Some locations are worse than others for property taxes.
I'm in a red state with relatively tame property taxes but the taxes that do exist that count inventory as property prevent us from keeping appreciable inventory. Everything is a minimum 3 week lead time to buy and produce, usually more. I am pretty sure JIT slows down the economy in general.
Since when are companies taxed on inventory? I thought JIT was about freeing up capital and avoiding waste (spoilage, out of date inventory etc)? It's hard to change that...
https://semiwiki.com/semiconductor-services/298336-automaker...