Why a $ 1 Chip Shortage Caused a Crisis in the Global Economy

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To understand why the $ 450 billion semiconductor industry has been in crisis, a useful place to start is a part of a dollar called a display driver.

Hundreds of different types of chips make up the global silicon industry, with the most striking of Qualcomm Inc. and Intel Corp. ranges from $ 100 each to more than $ 1,000. Those run powerful computers or the shiny smartphone in your pocket. In contrast, a display controller is mundane – its sole purpose is to convey basic instructions for illuminating the screen of your phone, monitor, or navigation system.

The problem for the chip industry, and increasingly for companies beyond technology, such as automakers, is that there are not enough display drivers for everyone. The companies that make them can’t keep up with growing demand, so prices skyrocket. That contributes to supply shortages and rising costs for liquid crystal display panels, essential components for making televisions and laptops, as well as high-end cars, airplanes and refrigerators.

“It’s not like you can manage. If you have everything else, but you don’t have a display driver, then you can’t build your product, ”says Stacy Rasgon, who covers the semiconductor industry for Sanford C. Bernstein.

Now the crisis in such a seemingly insignificant handful of pieces (for example, power management chips are in short supply too) is cascading through the global economy. Car manufacturers like Ford Motor Co., Nissan Motor Co. and Volkswagen AG has already reduced production, leading to estimates of more than $ 60 billion in lost revenue for the industry this year.

The situation is likely to get worse before it gets better. A rare winter storm in Texas wiped out swaths of American production. A fire at a key factory in Japan will shut down the facility for a month. Samsung Electronics Co. warned of a “Serious imbalance” in the industry, while Taiwan Semiconductor Manufacturing Co. said it cannot keep up with demand despite having factories in more than 100% of capacity.

“I have never seen anything like this in the last 20 years since our company was founded,” said Jordan Wu, co-founder and CEO of Himax Technologies Co., a leadership display driver provider. “Every application is missing chips.”


The chip crisis was born out of an understandable miscalculation when the coronavirus pandemic struck last year. When Covid-19 began to spread from China to the rest of the world, many companies anticipated that people would cut their costs when times got tough.

“I cut all my projections. I was using the financial crisis as a model, ”says Rasgon. “But the demand was really tough.”

People stuck at home started buying technology and then kept buying. They bought better computers and bigger screens so they could work remotely. They gave their children new laptops for distance learning. They picked up 4K TVs, game consoles, milk frothers, air fryers and immersion blenders to make life in quarantine more enjoyable. The pandemic turned into a widespread Black Friday online.

The automakers were surprised. They closed the factories during the shutdown as demand collapsed because no one could get to the showrooms. They told suppliers to stop shipping components, including chips that are increasingly essential for cars.

Then, late last year, demand began to pick up. People wanted to go out and did not want to use public transport. Automakers reopened factories and went to work with chipmakers like TSMC and Samsung. Your answer? Behind the line. They couldn’t make chips fast enough for their still loyal customers.

A year of poor planning led to massive chip shortages from automakers

Himax’s Jordan Wu is in the midst of the tech industry storm. On a recent morning in March, the 61-year-old with glasses agreed to meet at his Taipei office to discuss the shortages and why they are so difficult to resolve. He was eager enough to talk that the interview was scheduled for the same morning that Bloomberg News requested it, with two members of his staff joining in person and two others dialing by phone. He wore a mask throughout the interview, speaking with care and articulation.

Wu founded Himax in 2001 with his brother Biing-seng, now the president of the company. They started out by manufacturing controller ICs (for ICs), as they are known in the industry, for laptops and monitors. They went public in 2006 and grew with the computer industry, expanding to smartphones, tablets, and touchscreens. Its chips are now used in dozens of products, from telephones and televisions to automobiles.

Wu explained that he can’t make more display drivers by putting more pressure on his workforce. Himax designs display controllers and then manufactures them in a foundry such as TSMC or United Microelectronics Corp. Its chips are made using what is cleverly called “mature node” technology, equipment at least a couple of generations behind cutting-edge processes. These machines etch lines in silicon 16 nanometers or more wide, compared to 5 nanometers in high-end chips.

Chipmakers have seen their shares soar with strong demand

The bottleneck is that these mature chip-making lines are running out. Wu says the pandemic created such strong demand that manufacturing partners are unable to make enough display controllers for all the panels found in computers, televisions, and game consoles, plus all the new products that companies they are installing displays, like refrigerators, smart thermometers. and car entertainment systems.

There has been a particular restriction on driver ICs for automotive systems because they are typically made on 8-inch silicon wafers, rather than more advanced 12-inch wafers. Sumco Corp., a leading wafer manufacturer, reported that production capacity for 8-inch equipment lines was approximately 5,000 wafers per month in 2020, less than in 2017.

No one is building more mature node fabrication lines because it doesn’t make economic sense. Existing lines are fully depreciated and tuned for near-perfect returns, meaning that basic display controllers can be made for less than a dollar and more advanced versions for not much more. Buying new equipment and starting with lower returns would mean much higher expenses.

“Creating new capacity is too expensive,” says Wu. Companions like Novatek Microelectronics Corp., also based in Taiwan, has the same limitations.

That deficit is manifesting itself in an increase in the prices of LCD screens. A 50-inch LCD panel for televisions doubled in price between January 2020 and March this year. Bloomberg Intelligence’s Matthew Kanterman projects that LCD prices will continue to rise through at least the third quarter. There is a “severe shortage” of display controller chips, he said.

LCD Screen Prices Are Rising

Liquid crystal display prices have risen during the pandemic

Bloomberg Intelligence, IDC

What aggravates the situation is the lack of glass. Major glass manufacturers reported accidents at their production sites, including a power outage at a The Nippon Electric Glass Co. factory in December and an explosion at the AGC Fine Techno Korea factory in January. Production is likely to remain restricted until at least the summer of this year, said DSCC consultancy co-founder Yoshio Tamura.

April 1 IO Data Device Inc., a major Japanese manufacturer of computer peripherals, raised the price of its 26 LCD monitors by an average of 5,000 yen, the largest increase since they began selling the monitors two decades ago. A spokeswoman said the company cannot make a profit without the increases due to rising component costs.

All of this has been a boon for the Himax business. Sales are increasing and its share price has tripled since November.

But the CEO is not celebrating. Your entire business is built on giving customers what they want, which is why your inability to fulfill their requests at such a critical time is frustrating. He does not expect the crisis, especially for automotive components, to end anytime soon.

“We haven’t reached a position where we can see the light at the end of the tunnel yet,” Wu said.


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