We keep reading news about the shortage in semiconductors around the world, and how many corporate are suffering from it. Since many may wonder about the crisis, and whether this crisis was planned before or not (the usual conspiracy way of thinking). Because of all of that, I decided to write about the reasons behind this shortage crisis, in simple terms both normal & technical person could understand. I hope I manage to give you a clear idea about the problem.
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When Covid-19 crisis happened, many semiconductor manufacturers lowered their production. When governments used started to pump money into the financial system to help the economy, this led to a fast recovery of the economy. Which resulted in a lot of demand in electronics. Corporates switching to work from home and schools to studying from home led to an huge demand for computers & the like.
Because of the semiconductors shortage, and to lessen the effect of the issue on their operations, many of these semiconductors manufacturers’ clients started to double-booking their orders. This helped exacerbate the issue.
Some may wonder, who won’t these semiconductors manufacturers build new factories? There are many ways to answer this question. First, building these factories is expensive. It takes years for these plants to finish building them. The 18 months or so that passed since the start of the crisis isn’t enough to build those.
If you followed the history of the semiconductors industry, you will notice that the periods of shortage were always followed by periods of gluts. Following by a collapse in the industry. So semiconductor manufacturers are afraid of raising their capacity, which could trouble them later on. Bear in mind that having a surplus capacity is a very bad thing in the industry. As manufacturers need to sell a lot of components to cover the cost of equipments.
The following chart shows you how the revenue in the industry collapse every time a glut occurs:-
In addition to that, we need to take into account that the equipments used in the industry get older over time, and they need to be replaced with newer machines. So, as I previously mentioned, companies need to sell a lot of components to cover these costs. Specially since the cost of these equipment keeps on increasing with every generation.
A lot of people think the real issues likes in TSMC, as it’s the biggest semiconductors manufacturer. In reality, the real bottleneck lies in ASML. The Netherland maker of the Lithography machine used it making semiconductors. All the large manufacturers like TSMC, Intel & Samsung depend on TASML to get these equipments.. Making these equipments is hard & takes time, and each machine is made different than the other. On the top of that, ASML can’t make more than tens of these machines a year. Until the time of me writing this article, there’s no alternative to its products.
I sincerely hope my article has managed to explain the semiconductor crisis in the simplest way possible. And see you again with another article.