What's actually "chip shortage"?

[nardev]

It might sound very very stupid to some but the most common explanation that i heard sounded pretty incomplete.

If i got it right, the explanation was:

First car manufacturers than some other electronics manufacturers "lost manufacturing slots" which makes delays.

So my question is, what other industry branches "got those slots", how come they have so huge need and what other "industry" is making so huge sales?

Also, "shipping" delays etc was given as an explanation. Despite the fact that all of mayor and mission critical manufacturing routes were active all the time.

At the same time, more and more protectionism in USA/EU Economics starts to appear. Understandably all of them want to be less dependent  on China manufacturing etc.

Example: https://blog.adafruit.com/2021/06/09/bosch-opens-german-chip-plant/
* There s many more information of huge investments and plans for semiconductor manufacturing support in USA/EU

So, my theory is that all the information about chip shortage is probably partially true but at the same time protectionism propaganda in order to motivate and shift manufacturing capabilities from China "back to USA/EU"?

Does anyone else see it that way?

[PlainName]

This appears to explain it well:

https://www.theregister.com/2021/06/09/let_the_chips_fail_where_they_may/

[ataradov]

Chip manufacturers do not make chips in quantities that large manufacturers want (250K+) just in case. The manufacturing is planned based on the orders placed in advance. For the orders there are cancellation dates, where you can cancel the order without penalties.

Many car manufacturers and other large volume markets cancelled their orders they placed months ago. So those parts were removed from manufacturing plans and were replaced with different parts, which still had orders pending.

Now all the orders were placed again, but the chips don't magically appear, it takes time to manufacture them. This is the delay you are seeing.

There is no shortage of the parts in general, there is shortage of very specific parts. But that still screws everyone up.

[nardev]

Fair enough but in your opinion, is there a possibility for my theory?

[ataradov]

There is no harm in trying to highlight that current situation could have been resolved by having more manufacturing capacity and more flexibility. 

But why are you asking chip manufacturers to do more? Simply because chips are small and easy to store? The reason we have car shortage is because car manufactures did not make enough cars in advance. By that logic we need to build more car factories.

Having extra capacity right now would help, but it would be sitting idle the rest of the time.

It is a generally a good idea to have critical infrastructure locally, but how realistic it is in practice depends on the situation. If done correctly, it may work. The chances of politicians doing it correctly are next to zero.

[David Hess]

There is no shortage of the parts in general, there is shortage of very specific parts. But that still screws everyone up.

There were also disruptions on the supply side, and not all COVID related.

There is no harm in trying to highlight that current situation could have been resolved by having more manufacturing capacity and more flexibility. 

...

Having extra capacity right now would help, but it would be sitting idle the rest of the time.

Exactly, extra capacity in use now is unused capacity at any other time.  Nobody makes money with unused capacity so it is minimized.

It is a generally a good idea to have critical infrastructure locally, but how realistic it is in practice depends on the situation. If done correctly, it may work. The chances of politicians doing it correctly are next to zero.

Wendover just did an excellent documentary on this subject.  A lot of the current problems were caused by poor business and government policies, (1) and none of that looks to change:

https://youtu.be/b1JlYZQG3lI

(1) An example of poor government policy is how the US government taxes railroad track by the mile, thereby discouraging double tracking, which makes existing tracks less efficient, and completely destroys consumer rail, which is maybe the intent now if it was not to start with?

[chickenHeadKnob]

This current shortage has some features I have not witnessed in past shortages. First in the past it was the case most semi manufacturers had their own fabs. Quote from AMD's Jerry Sanders "real men have fabs". Now AMD is completely fabless as are many others. So shortages would fall in one of two categories: a specific chip from a specific manufacturer, say a processor from Motarola, or a more generic shortage of memory parts. Now with much production sourced from the big three TSMC, Global Foundaries and Samsung tight fab capacity is hitting everyone at once, across many market sub-sectors .

As far as increasing demand, that started in 2019 pre-covid as Chinese manufactures like Huawei had bulk stock buys in advance of sanctions affecting key components. Then covid which initially formed a lull in demand  then converted to work and school from home need for additional desktops and web-cams.  Also generated  additional demand for cars and movement to suburbs and ex-burbs. In North America real estate demand for single family dwellings outside cities is in a profound sellers market with bidding wars happening in the most desired areas.

The backup of container ships at west coast ports and the rental cost increases for containers is a visible symptom of people sitting at home spending their "stimi" checks online and buying crap ultimately sourced from China, much of which contains electronic components.

[cortex_m0]

First car manufacturers than some other electronics manufacturers "lost manufacturing slots" which makes delays.

So my question is, what other industry branches "got those slots", how come they have so huge need and what other "industry" is making so huge sales?

Also, "shipping" delays etc was given as an explanation. Despite the fact that all of mayor and mission critical manufacturing routes were active all the time.

I don't completely agree with this assessment. A fair chunk of the slots that the automakers cancelled went unfilled in spring 2020, with semiconductor factories operating but at lesser capacity than normal (because of government restrictions, management decisions, or both).

There was very high demand for consumer electronics in 2020. A recent report said the number of "smart devices" in homes more than doubled in the United States from about 11 to 25: https://www.reuters.com/technology/smart-devices-get-pandemic-boost-us-households-deloitte-survey-2021-06-09/

Shipping is in fact backlogged into the United States, and has been for some months. It's not a huge factor, but it is real. https://www.bloomberg.com/news/articles/2021-04-26/los-angeles-ports-are-slowly-chipping-away-at-their-ship-backlog

Do I think that trade policy played a role? Yes, absolutely.  I know that Huawei bought larger than normal orders of certain products in 2020 due to export restrictions taking effect. It wouldn't be shocking if foundries in China are reserving capacity for whatever replacement parts Huawei and others are going to use going forward.

The other factor, perhaps the most important factor, is that one shortage resolving does not mean the build is clear of all shortages. I've been dealing with constrained component supplies for a good seven or eight months now. My company can only do its builds when ALL the components are available, and there have been constant shortages among the bill of materials, including passive components.

[Siwastaja]

The important and possibly non-obvious pieces of the puzzle are

* Factories are running normally near-100% because they are expensive investments,
* Increasing production capability is a massive investment which takes a lot of money and time, once you decide it, it will take many years before it's in action and then you need to have customers to buy the product for the next 10 years.
* If people can't fully work at said factories due to health restrictions, it will impact the output
* Even normally there are small-scale shortages because supply and demand is so carefully finetuned together. It doesn't require much of extra demand, or much of extra problems to tip that balance off and cause a long backlog in short time, which takes long to rectify (see the first point of near-100% operation to see why; you can just go to 100%, not 110%).

A really simplified calculation would show that if supply is normally working at 95% to satisfy the normal need, if output decreases by 10% to 85.5%, and demand increases from normal (95%) by 10% to 104.5%, during half a year a backlog of (104.5-85.5%)*6months =  114 percentage-months is created, and even if demand goes back to normal (95%) and operation is pushed to 100%, it would take 114 %-months / 6 months = 19 months to satisfy the backlog!

Oversizing all the investments by, say, 25% would pretty much guarantee steady supply in all situations but that would basically be a 25% price increase in all products for no visible benefit under normal conditions.

[madires]

Then covid which initially formed a lull in demand  then converted to work and school from home need for additional desktops and web-cams.

US PC Shipments Soar 73% In the First Quarter As Apple Falls From Top Spot: https://hardware.slashdot.org/story/21/06/08/1932246/us-pc-shipments-soar-73-in-the-first-quarter-as-apple-falls-from-top-spot

[nardev]

So many interesting facts and opinions but it looks like my "theory" confused you. It's more speculation and in the domain of political economy

 <So, my theory is that all the information about chip shortage is probably partially true but at the same time protectionism propaganda in order to motivate and shift manufacturing capabilities from China "back to USA/EU"?

Does anyone else see it that way?>

[madires]

I think the national investment programs for semiconductors are a reaction to the current mess of outsourcing, just-in-time production done wrong and Chinese competition (some manufacturers are supported by subsidies). The chip shortage is real and not just propaganda.

[SilverSolder]

So many interesting facts and opinions but it looks like my "theory" confused you. It's more speculation and in the domain of political economy

 <So, my theory is that all the information about chip shortage is probably partially true but at the same time protectionism propaganda in order to motivate and shift manufacturing capabilities from China "back to USA/EU"?

Does anyone else see it that way?>

I think it was answered above, if you put the jigsaw pieces together.  The fundamental problem is that the industry is geared to run at near 100% capacity even during normal, sunny days - and this means there is no spare capacity to cope with any kind of demand peak.

Your point about protectionism is valid:   the protectionists, in their misguided zeal, have the effect of reducing flexibility and caused unusual orders to be placed (e.g. Huawei et al), making an already bad situation even worse.  But they didn't cause the crisis on their own - they just make it worse, in that people can't as easily just sit down around a conference table and come up with good solutions.

[CatalinaWOW]

 Nardev, you are saying that some politicians are using the "crisis" for their own political gains.  That is kind of like saying water is wet. 

I personally agree, it is absolutely happening.  But I don't think it is cause or even a very large part of what is going on.

[Tomorokoshi]

Back in the old days, like 2019, the shortage problem was ceramic capacitors. If I recall one strategy was to replace 0.1 uF with 0.068 uF or other such tricks.

The issues with silicon components plays out as described above: a few very large fabs, many design firms trying to schedule into those fabs, and a wildly gyrating market.

The MBA's made the same (wrong) decision that engineering managers often fall into: trying to schedule production to 100%. There is no margin or slack; the supply network is too long and too brittle to elegantly balance inductive supply with capacitive demand. Step responses like Covid throw the system into oscillation.

I advocate (which of course never gets implemented) that engineering resources shouldn't be scheduled to more than 80%, and should really be more like 70% but that tends to get rejected as silly. Without that extra and realistic margin built in, the asynchronous events like redesign for part substitution breaks the schedule all the way out. The extra margin also allows for a more refined design.

[nardev]

Nardev, you are saying that some politicians are using the "crisis" for their own political gains.  That is kind of like saying water is wet. 

I personally agree, it is absolutely happening.  But I don't think it is cause or even a very large part of what is going on.

Well,  after reading all here i now 100% agree.

The thing is that i'm from Bosnia and not only that we don't have much of an industry any more here, we also lack the supply optimization in other consumer goods, so i can confirm that i was shocked about shortages, back in march-april of toilet paper etc in USA as i didn't notice anything significant here.

Well, flour and paper were in high demand but you could buy as much as you wanted. I don't remember a day that it was not available in all local stores and malls.

[nardev]

So many interesting facts and opinions but it looks like my "theory" confused you. It's more speculation and in the domain of political economy

 <So, my theory is that all the information about chip shortage is probably partially true but at the same time protectionism propaganda in order to motivate and shift manufacturing capabilities from China "back to USA/EU"?

Does anyone else see it that way?>

I think it was answered above, if you put the jigsaw pieces together.  The fundamental problem is that the industry is geared to run at near 100% capacity even during normal, sunny days - and this means there is no spare capacity to cope with any kind of demand peak.

Your point about protectionism is valid:   the protectionists, in their misguided zeal, have the effect of reducing flexibility and caused unusual orders to be placed (e.g. Huawei et al), making an already bad situation even worse.  But they didn't cause the crisis on their own - they just make it worse, in that people can't as easily just sit down around a conference table and come up with good solutions.

Agree, the "Wendover Productions" video explained some things that i didn't understand. I simply don't see companies in my country relaying much on supply optimization. A friend of mine had a phd in math, making models about stock optimization etc but very few companies were interested in that here.

[coppice]

The MBA's made the same (wrong) decision that engineering managers often fall into: trying to schedule production to 100%. There is no margin or slack; the supply network is too long and too brittle to elegantly balance inductive supply with capacitive demand. Step responses like Covid throw the system into oscillation.

No margin for slack is how you maximise return on investment.

I advocate (which of course never gets implemented) that engineering resources shouldn't be scheduled to more than 80%, and should really be more like 70% but that tends to get rejected as silly. Without that extra and realistic margin built in, the asynchronous events like redesign for part substitution breaks the schedule all the way out. The extra margin also allows for a more refined design.

Who shouldn't be scheduling engineering resources more than 80%? A business should certainly be trying to get close to 100%. If society wants to have extra capacity lying around for a rainy day, and are prepared to fund equipment that will probably never be used, that's another issue. It doesn't serve the interests of a business, though.

The real problem is that when we really should have stuff lying around just in case, like all the medical supplies the world was short of in the spring of 2020, society doesn't care enough to make the commitment it should. They just play a game of pass the blame when bad things happen.

[nardev]

@coppice mentality of nations is not the same. Also, strategies that they incline to.

I would just cite one simple example.

VW back in 90's had two times more engineers (i think around 7K) while i think in whole USA (i don't remember if it was one or several main manufacturers) had around 3.5K engineers directly involved in design, planning, construction,manufacturing, testing etc.

Well, VW is well known for quality were USA cars in 90's didn't have such reputation.

So, you can make cars with less engineers but you can't get the quality, reputation and eventually be prosperous as VW.

IMHO

[coppice]

@coppice mentality of nations is not the same. Also, strategies that they incline to.

I would just cite one simple example.

VW back in 90's had two times more engineers (i think around 7K) while i think in whole USA (i don't remember if it was one or several main manufacturers) had around 3.5K engineers directly involved in design, planning, construction,manufacturing, testing etc.

Well, VW is well known for quality were USA cars in 90's didn't have such reputation.

So, you can make cars with less engineers but you can't get the quality, reputation and eventually be prosperous as VW.

IMHO

Is that supposed to relate to what I said in some way? If so, you'll have to explain.

[Marco]

I think the national investment programs for semiconductors are a reaction to the current mess of outsourcing, just-in-time production done wrong and Chinese competition (some manufacturers are supported by subsidies). The chip shortage is real and not just propaganda.

One major advantage of a national supply chain ... you can centrally plan stuff. Rationing versus hoarding and creating lottery winners.

[tooki]

It might sound very very stupid to some but the most common explanation that i heard sounded pretty incomplete.

If i got it right, the explanation was:

First car manufacturers than some other electronics manufacturers "lost manufacturing slots" which makes delays.

So my question is, what other industry branches "got those slots", how come they have so huge need and what other "industry" is making so huge sales?

Also, "shipping" delays etc was given as an explanation. Despite the fact that all of mayor and mission critical manufacturing routes were active all the time.

At the same time, more and more protectionism in USA/EU Economics starts to appear. Understandably all of them want to be less dependent  on China manufacturing etc.

Example: https://blog.adafruit.com/2021/06/09/bosch-opens-german-chip-plant/
* There s many more information of huge investments and plans for semiconductor manufacturing support in USA/EU

So, my theory is that all the information about chip shortage is probably partially true but at the same time protectionism propaganda in order to motivate and shift manufacturing capabilities from China "back to USA/EU"?

Does anyone else see it that way?

Absolutely not.

In a nutshell, the car manufacturers guessed wrong (they thought demand for new cars would plummet for years, but it didn’t), but the prolonged working from home and distance learning created a massive surge in demand for personal computers, tablets, webcams, etc. that still has not receded. So those free manufacturing slots became free just when the computer industry needed them. (And even with that added capacity, lead times on laptops are still around double what they were pre-COVID!)

[coppice]

One major advantage of a national supply chain ... you can centrally plan stuff. Rationing versus hoarding and creating lottery winners.

Central planning always does wonders for smooth predictable supply.

[nardev]

@coppice mentality of nations is not the same. Also, strategies that they incline to.

I would just cite one simple example.

VW back in 90's had two times more engineers (i think around 7K) while i think in whole USA (i don't remember if it was one or several main manufacturers) had around 3.5K engineers directly involved in design, planning, construction,manufacturing, testing etc.

Well, VW is well known for quality were USA cars in 90's didn't have such reputation.

So, you can make cars with less engineers but you can't get the quality, reputation and eventually be prosperous as VW.

IMHO

Is that supposed to relate to what I said in some way? If so, you'll have to explain.

OMG, wrong copy paste, it should have been @CatalinaWOW

[PlainName]

the supply network is too long and too brittle to elegantly balance inductive supply with capacitive demand.

That's a good way of putting it 

Step responses like Covid throw the system into oscillation.

Mmmm. Following that train of thought suggests that not long after this dearth of parts there will be a glut with consequently lower pricing. If one could just hold out until then...