What is causing the chip shortage?

My friend had to wait 11 months for a Hino truck. Another friend who is a small time network installer has been waiting months for some hardware for $70,000 project. He is really afraid that he will lose his customer.
You have to wait months to get a new car in my city and used car prices have gone through the roof. Same with consumer electronics.
What is causing the chip shortage ?
I’ve been reading about the coal shortage and power plant shutdowns in China and was wondering if that had something to do with it.

Basically, the car companies got used to being the Big Fish, even when they weren’t.

At the start of the pandemic, they cut back production, and accordingly cut back on buying all of the many components they buy. Then, when they wanted to ramp production back up, they changed their contracts again, to buy more components. For most manufacturers of car components, the car companies are by far their biggest customers, and so the car companies can get away with this. To the chip manufacturers, though, the car companies are a relatively small part of their business, and so when they cut back their buying, the chip makers just re-allocated that small part of their output to the phone companies, who are their biggest customers. And now that the car companies are trying to get that share back, the chip companies are saying “Nope, that production is already spoken for”.

  1. Covid.

  2. There was a massive decline in demand last year, followed by a massive increase in demand this year. Business takes time to adapt to this.

  3. A specific problem with vehicle manufacturers is that they believe in Just-In-Time. So last year with the big decline in orders they cancelled orders for chips. The chip manufacturers switched production to other customers. Now when the auto manufacturers want chips they can’t get them. So for every dollar they saved last year, this year they might have lost $100.

Car companies also outsource almost all of their components. In good times, this means that they can focus on their core competencies. In bad times, it means that they are at the mercy of their suppliers.

There are alternative chips out there in many cases. But switching is difficult: you have to find chis that are qualified for automotive use, or qualify them yourself, and then port your PCB design and software to use the new chip. It’s a lot of work.

If you’re a component supplier, you might not want to pay those costs. Sure, you aren’t selling product, but unless you’re confident that you can recoup the costs, it might be better to just ride things out. Losing the sale of a $5 component isn’t great, but it’s much worse for the car manufacturer, who is losing out on a $35,000 sale because they lack that one component.

The auto manufacturer has limited ability to deal with this, since there aren’t too many suppliers around. Could they invest in a supplier to help them with the transition? Sure, but that takes time, plus you’re helping the supplier’s other customers. Why should Ford pay to help GM get the same module? Maybe you could work something into a contract, but that all starts to get tricky.

Tesla is much more vertically integrated than other car manufacturers, and has been able to weather the supply chain problems better than other makes. Because they do so much internally, they were able to redesign their modules to use alternative chips. It took time and effort, but they also knew how much money they would recoup, and also wasn’t benefitting their competitors.

I’d swear there was a topic about this already but I can’t find it. Anyway, another issue is that a lot of automotive chips use old fabrication technology and comparatively large process sizes (chip fabs are always trying to reduce process size to shorten signal distance, increase speed, and reduce waste heat). They stick with those older designs because they’ve been thoroughly vetted for the awful conditions in which automotive chips must operate. I think automotive spec is even more stringent than NASA spec because of the amount of vibration, temperature swings, dirt/fumes, poor power delivery, and lack of monitoring.

So when the automakers cut back on orders, some companies used that opportunity to shut down outdated fabs and retool them for more modern and lucrative chips. Those older chip designs are probably only useful for niche industrial applications which were also hard hit by Covid. Better to retool for the more general smartphone (etc.) market which itself still had/has high demand, rather than just let an old fab sit mothballed. So not only did the automakers lose production slots, those slots were eliminated altogether in several instance. If the automakers want to use those new chips they have to go through an entirely new certification process, and that’s assuming they can even get new chips compatible with their software and other hardware components.

We did have an earlier thread, but it was asking whether auto companies could pivot to use different, more common, processor chips instead of the ones they do use.

The short answer is no.

The longer answer is that automotive processor chips are designed from the ground up to do the job of running a car. This is a very different job to running a phone or some other consumer tech The fundamental internal design of the chips is very significantly different. It isn’t just a matter of software.

Cars are hard real time environments. “Hard” means that deadlines are hard. If the system is unable to complete a needed computation in the required time the system has failed. Not degraded, it is considered to have failed. Failure really means anything up to and including a destroyed engine, or inability to protect the occupants in a crash. In order to manage hard real time mission critical tasks in a car the processor chips are designed very differently to ordinary consumer processor chips. They have additional hardware features that are there to provide support for hard real time operations. This includes real time guarantees on things like bus based communications with other processors or controllers.

Auto manufactures get very enthusiastic about this sort of thing. It is common for them to demand that software design and testing is done down to the clock cycle. Your average ARM chip designed for a phone or other consumer thingy is simply unable to to do this. An auto chip might have a modifed ARM core, but it is the stuff that wraps around it that matters. Many auto chips are based on quite esoteric cores.

If some of the older fabs are actually gone, the (fabless) chip vendors may be forced to redesign the chip for the new process. This may be as easy as a process shrink, but indeed, the process will need to be qualified for automotive environmental specs. They would probably have had this on their roadmap anyway, but an urgent hurry-up would be unwelcome. Whether older fabs were pro-actively shut down is another matter.

Okay, we’ve answered this for the auto industry. So why can’t I get a PS5?

Is that part of the crypto farms buying up all the GPUs?

This article from Popular Science seems to explain it pretty well:

If you are not aware, it also costs in the neighborhood of USD10 billion and takes 3 years to build and get to mass production for a new fab. And if Omicron rips through China like I fear it will, then it will be another 2-3 years before supply and demand gets to a new equilibrium.

Plus fabs are huge water consumers. And a lot of fabs are located in places without a lot of water such as Arizona. Taiwan has a bunch of fabs, and had to subsidize farmers this time last year to not plant crops in order to ration the water to the fab makers during the “worst in 50 years” drought.

A fab based on extreme ultra-violet lithography intended for the latest node in the chip fabrication technology is in the many billions. These are the fabs we see in the news as critical to your next smart phone. A fab intended for the more pedestrian stuff, like the MCU that controls the doors and headlights, isn’t using the latest and greatest. Indeed is it way down the pecking order. But you can’t make cars without them. The line that Renesas had a fire in would have been pushing out these sort of mundane technology chips. Luckily they had the line back in about a month. Renesas is one of the big automotive suppliers. Pretty well every Japanese car you buy is filled with their products.

China has its own problems with building next generation fabs, as it has been frozen out of EUV technology. But talking of fires, Zeis had a fire, and that will put back the world’s EUV fab construction waiting list.

This just turned up in my inbox.

Overview video of chip production from the perspective of NXP - one of the companies in the chip shortage firing line. It starts a bit slow, but has some useful insights as it gets going.

Now that everyone understands how a grain of sand becomes an iPhone, here is a link to a Semiconductor Industry Association white paper that provides additional insight into the issues underlying the current crisis.

BCG-x-SIA-Strengthening-the-Global-Semiconductor-Value-Chain-April-2021_1.pdf (semiconductors.org)

Part of the automotive chip shortage is because they use the older style chip because they’re more robust. That limits the number of manufacturers who still make the older design.

As for products coming out of China they are currently experiencing covid delays that I would guess measures in weeks. That includes transportation. So if there’s a 2 week backlog on products that takes another 2 week hit with transportation.

China’s Zero Covid policy is driving this. They really clamp down on anyone connected to a person who gets infected. Also, they didn’t use MRNA style vaccines so their original vaccinations aren’t doing as well with the Omicron variant. These 2 things combined are causing problems with production.

Lockdowns are said to be brutal. Chinese friend was saying his family in northern china really suffered last month. One family member allowed out every second day to buy essentials which are in short supply as well. They subsist on rice and beans. In other parts of China coal shortage is causing long blackouts .
The spat with Australia that led to coal shortages according to him.
Places like the UAE seem to have realized that the chinese vaccines are less effective , so there is quite a rush to receive Pfizer and Moderna despite having been vaccinated with the chinese one.

Not just because older chips are more robust, but the actual design of your cars electrical and communications protocol are locked in at least 3 years before it goes into production. Validation of parts on a component level must be done before trial builds of vehicles are started. Contracts and logistics need ti be confirmed years in advance as well.

When I tell people I am working on vehicles they will not even see until 2025 they act shocked. Like we should be able to turn around stuff in a year. People think Tesla turns around things in a year but it isn’t so, not when you take all of the advance planning into the equation. Its just that a new company like Tesla doesn’t have the baggage that the established companies have.

What surprises me, @Si_Amigo, is that this isn’t the norm in the entire industry. I always assumed that all companies designed things 2-4 years ahead.

Consumer products do not have as stringent validation requirements as automotive. And they don’t have the governments of the world regulating them to the same extent. Drop your iPhone and it breaks no big deal. If your autonomus driving car veers into a crowd of pedestrians your entire multi-billion dollar business could be lost.

Most consumer products can be turned around in 18 months at the most. For the most part lives are not at stake t the same extent as cars. Its more about maximizing profit and being first with the neat thing.

I would think there is computer carry-over from one year to the next on a lot of models. If that is true I would have kept the order numbers up for computers of those cars to avoid covid delays.

But there might not be any carry-over on computers. Don’t know.

Or they could make generic computers that fit all cars and you plug in a single chip that controls a specific vehicle.

And I expect the Zero-Covid policy will quietly disappear after the Olympics. They’ll just stop enforcing it.