Chip Shortage Creates New Power Players

Chip Shortage Creates New Power Players

SAN FRANCISCO – Since 1989, microchip technology has worked in the electronics industry’s unique backwater, creating chips called microcontrollers that add computing power to cars, industrial equipment and many other products.

Now the global chip shortage has raised the company’s profile. Demand for microchip products is more than 50 percent higher than supply. This has put the company in Chandler, Ariz., In an unfamiliar position of power, which started operating this year.

Microchip generally allows customers to cancel a chip order within 90 days of delivery, but customers who have signed a contract for a 12-month order began to prefer shipments that cannot be canceled or rescheduled. This commitment reduced the likelihood of orders evaporating once the scarcity was over, giving the microchip more confidence to hire workers safely and to purchase expensive equipment to increase productivity.

“This gives us the potential not to be left behind,” said Ganesh Murthy, president and chief executive officer of Microchip, which reported on Thursday that profits had tripled in the most recent quarter and sales had risen 26 per cent to $ 1.65 billion.

Such an agreement is just one example of how the $ 500 billion chip industry is changing because of the silicon shortage, with many of the changes leading to epidemic-filled fuel shortages. The lack of small components – which have made manufacturers of cars, game consoles, medical devices and many other things tweak – is a clear reminder of the basic nature of chips, which act as the brains of computers and other products.

From chip buyers to sellers, especially those who own semiconductor manufacturing plants, long-term shifts in market power are key changes. The biggest beneficiaries are giant chip makers such as the Taiwanese semiconductor manufacturing company, which offers a service called foundry that makes chips for other companies.

But these shortcomings have also strengthened the influence of lesser-known chip makers such as Microchip, NXP Semiconductors, STMicroelectronics, Onsemi and Infineon, who design and sell thousands of chip types to thousands of customers. These companies, which manufacture many products in their own aging factories, are now able to choose which customers will get how many of their rare chips.

By taking steps such as signing long-term purchase commitments or investing to help chip makers increase productivity, many are favoring buyers who work harder as partners. Most importantly, chip makers are asking clients to share more information about which chips they will need, which will help guide them on how to pick a product.

“We want that visibility,” said Hassan El-Khauri, chief executive of chip maker Onsemi, a company formerly known as ON Semiconductor.

Many chip makers say they are using their new power sparingly, helping customers avoid problems such as factory closures and raising prices reasonably. Because, he said, goggling customers can lead to bad blood, which will hamper sales once the shortage is over.

Even so, the change of government has been smooth. Mark Adams, chief executive of Smart Global Holdings, a leading user of memory chips, said there is no benefit for buyers today.

Marvel Technology, a Silicon Valley company that designs and manufactures outsourced chips, has experienced a shift in power. While providing foundries with a 12-month chip production requirement, they began providing five-year forecasts starting in April.

“You really want a good story,” said Matt Murphy, CEO of Marvel. “Eventually the supply chain will allocate to them who they think will be the winner.”

This is a significant shift in psychology for an adult industry where growth is generally slow. Many chip makers have sold large quantities of interchangeable products over the years and often struggled to keep their factories profitable, especially if sales of items such as personal computers and smartphones declined which increased demand for the chip.

But components are now needed for more products, one of the many symptoms that can linger in rapid growth. In the third quarter, total chip sales rose nearly 28 percent to $ 144.8 billion, according to the Semiconductor Industry Association.

Over the years, industry consolidation has reduced excess production capacity and reduced the number of suppliers selling certain types of chips. So those buyers who can place and cancel orders once with less notice – and one chip maker can play on another to get lower prices – have less muscle.

One of the consequences of these changes has been making chip factories more valuable, including some of the older foundries owned by the foundries. Because new manufacturing processes have become so expensive that some chip designers do not go to the most advanced factories to make their products. As a result, demand for low-cost production lines that are five to 10 years old has decreased.

So some foundries, in a big policy shift, are putting more money into old production technology. TSMC recently announced plans to build such a plant in Japan. Samsung Electronics, a major foundry competitor, also said it was considering a new “legacy” factory.

But it will take many years for that investment to pay off. And they won’t address issues affecting chips like microcontrollers, which is a microcosm for twisting the supply chain.

Microcontrollers combine programming and computing capabilities with built-in memory to store data, often only adding features that come from specialized factories. And the number of applications from car brakes and engine systems to safety cameras, credit cards, electric scooters and drones is skyrocketing.

“We’ve probably sold more microcontrollers in the last decade than in the last decade,” said Mark Barnhill, Smith’s chief trading officer, a chip distributor in Houston. The wait to get some popular microcontrollers is now over a year, and product prices among merchants buying and selling chips have skyrocketed.

During the turmoil, companies that design or use chips have responded with new tricks. Some designers are adapting their products to be made in different factories with higher production capacity, said Shiv Taskar, global vice president of the consulting firm Capgemini.

And consumers who once bought chips based on price and functionality are also thinking more about availability.

Consider BrightAI, a start-up developing equipment and software that will help businesses connect equipment and other devices to the Internet. Alex Hawkinson, its co-founder, said he redesigned a circuit board four times in six months to fit different chips. The company has transferred some designers to China so that the products, including the ones found there, can be refined more quickly, he said.

Large chip users, such as automakers, have begun talking to manufacturers directly, rather than following the usual way of working through subcontractors. Last month, General Motors struck a deal with chip maker Wolfspeed to secure a share of semiconductors coming from a new plant that makes energy-efficient components for electric vehicles.

The power shift of the chip industry has helped microchip, it has also brought its own headaches. Mr. Murthy said the company has produced more chips at its three main factories in Arizona and Oregon, as well as gaining more from foundry partners. But demand is growing faster than it can produce.

“We’re far behind,” he said.

Expanding microchip’s own plants is not easy. For one thing, the company relies heavily on buying used production equipment, but “it’s all dried up,” he said. Said the idol.

It can take 12 to 18 months to get new gear and it costs more, he said. While long-term purchase agreements provide more stability for such investments, Microchip and others also hope that Congress will approve a $ 52 billion funding package, which is expected to include a grant to subsidize US chip production.

“Do we depend on it to run our business? No, ”said Mr. Murthy. “Will it help some of our investment choices? Even.”

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Team GadgetClock
Team GadgetClock
Joel Gomez leads the Editorial Staff at Gadgetclock, which consists of a team of technological experts. Since 2018, we have been producing Tech lessons. Helping you to understand technology easier than ever.

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