The small chip manufacturers operating old factories were so inconspicuous. However, a "chip shortage" has made them extremely powerful. After the tight supply caused by the epidemic ends, changes in this industry may still exist.
Since 1989, the American Microchip Technology Company has been operating in the stagnant waters of the electronics industry, producing chips called microcontrollers, adding computing power to automobiles, industrial equipment, and many other products.
Today, a global chip shortage crisis has raised its image. The demand for Microchip's products is more than 50% higher than its supply, bringing the Chandler, Arizona-based company to an unfamiliar position in power . The company began using this power this year.
Although Microchip Technology generally allows customers to cancel chip orders within 90 days after delivery, it has begun to provide customers who have signed 12-month order contracts with priority shipping rights, and these contracts cannot be cancelled or rescheduled. The advantage of these long-term contracts is that even if there is no shortage of market supply, Microchip Technology’s orders will be guaranteed and will not disappear out of thin air, allowing the company to more confidently hire workers and purchase expensive equipment to increase production.
"This gives us no worries." Microchip Technology President and CEO Ganesh Moorthy (Ganesh Moorthy) said. Microchip Technology released its financial report last Thursday, stating that its profit has tripled in the most recent quarter, and sales have increased by 26% to US$1.65 billion.
At present, the chip industry with a scale of 500 billion US dollars is undergoing changes due to the shortage of chips. Many changes may last longer than the tight supply caused by the epidemic. The above-mentioned contract is just one example. This shortage of micro-components has made manufacturers of cars, game consoles, medical equipment, and many other products complain. It is a clear reminder of the basic nature of chips: the chip is equivalent to the "brain" of computers and other products.
The primary change is the long-term transfer of market voice from chip buyers to sellers, especially those manufacturers that have factories to produce semiconductors. The most obvious beneficiaries are chip manufacturing giants such as TSMC, which provide foundry services to manufacture chips for other companies.
However, the chip shortage has also greatly increased the influence of lesser-known chip manufacturers such as Microchip Technology, NXP Semiconductors, STMicroelectronics, ON Semiconductor, and Infineon. These companies have designed and sold thousands of chip varieties to thousands of customers. They produce many products in their old factories, and now they are more and more able to choose which customers can get their scarce chips and how much.
Many chip manufacturers prefer buyers who behave more like partners, such as signing long-term purchase commitments or investing in helping chip manufacturers increase production. Most importantly, chip manufacturers will require customers to share more information about which chips they will need earlier, which will help guide manufacturers to make decisions on how to improve production.
"This kind of visibility is exactly what we need." Chip manufacturer ON Semiconductor CEO Hassane El-Khoury (Hassane El-Khoury) said.
Many chip manufacturers say they are restraining their use of their new powers to help customers avoid problems such as factory closures and moderate price increases. They said that this is because asking customers wildly may cause dissatisfaction, which will affect sales when the supply shortage ends.
Even so, the transfer of power is obvious. "Now, buyers have no bargaining chips in their hands." said Mark Adams, CEO of Smart Global Holdings, a major user of memory chips.
Marvell Technology, a Silicon Valley company that designs chips and outsources manufacturing, has experienced this change in power. Although the company used
to provide 12-month chip production expectations to foundries in the past, it began to provide five-year expectations to foundries starting in April.
"You need to provide a very good story," said Matt Murphy, CEO of Meiman Electronics. "Ultimately, the supply chain will be allocated to the people they think will be the winners."
For a mature industry with generally slow growth, this is a major psychological change. For many years, the products sold by many chip manufacturers are basically interchangeable. They often find it difficult to maintain the operation of the factory in a profitable situation, especially when the sales of PCs and smartphones that drive most of the chip demand are declining. Case.
But now, these components are essential for more products, which is one of many signs that the rapid growth of the chip industry may continue. According to the Semiconductor Industry Association, total chip sales in the third quarter surged by nearly 28% to $144.8 billion.
At the same time, years of industry consolidation have also drained excess production capacity, resulting in fewer suppliers selling exclusive chip types. Therefore, buyers who used to place orders and cancel orders without knowing it, and use competition among manufacturers to obtain lower prices, now have no such right to speak.
One effect of these changes is to make chip factories more valuable, including some old factories owned by foundries . This is because the new manufacturing process has become so expensive that some chip designers have not moved to the most advanced factories to produce their products. This is the result of insufficient demand for cheap production lines with a history of 5 to 10 years.
Therefore, some foundries began to implement major strategic transfers and began to invest more funds in older production technologies. TSMC recently stated that it will build such a factory in Japan. TSMC’s main competitor, Samsung Electronics, also said that it is considering building a new "traditional" factory.
However, it will take years for these investments to pay off. Nor can they solve problems affecting chips such as microcontrollers. Microcontrollers are a microcosm of the squeezed supply chain
Microcontrollers combine computing power with built-in memory for storing programs and data, and usually add functions that only come from specialized factories. The number of applications is soaring, from car brake and engine systems to surveillance cameras, credit cards, electric scooters and drones.
"We may have sold more microcontrollers in the past year than in the past 10 years," said Marc Barnhill, chief trading officer of Smith, a Houston chip distributor. He pointed out that some popular microcontrollers now have to wait more than a year, and among traders buying and selling chips, the prices of these products have risen 20 times.
In this turmoil, companies that design or use chips have adopted new coping strategies. According to Shiv Tasker, Global Vice President of Capgemini Management Consulting, some designers are adjusting their products to produce in different factories with higher production capacity.
Now, those customers who used to buy chips based on price/performance ratio are also thinking more about usability. Take BrightAI as an example. This startup develops equipment and software to help companies connect equipment and other devices to the Internet. BrightAI co-founder Alex Hawkinson (Alex Hawkinson) said that in order to adapt to different chips, the company redesigned a circuit board four times in six months. He revealed that the company has also transferred some designers to China in order to modify products faster with components obtained from China.
Large-scale chip users like automakers have begun to talk directly with manufacturers instead of following the convention of working with subcontractors. Last month, General Motors reached an agreement with chip manufacturer Wolfspeed to ensure that it obtains a portion of semiconductors from a new factory that produces energy-efficient components for electric vehicles.
Although the power transfer of the chip industry has helped Microchip Technology, it has also brought trouble to it. Murti said that the company has successfully produced more chips in its three major factories in Arizona and Oregon, and obtained more chips from foundry partners, but the demand has grown faster than its production capacity.
"Our production capacity is getting more and more unable to keep up with demand." He said.
For Microchip Technology, expanding its own factory is not easy. First, the company has been heavily dependent on the purchase of second-hand manufacturing equipment, but "the industry has dried up." He said that it may take 12 to 18 months to purchase new equipment, which is more costly. Although long-term purchase agreements provide greater stability for such investments, Microchip Technology and other companies also hope that Congress will approve a $52 billion financing plan, which is expected to include subsidies for more US chip production.
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