Chip Makers, Once in High Demand, Confront Sudden Challenges

Oct 27, 2022 · 71 comments
Bill D. (New Jersey)
There are still "challenges" in obtaining chips for the auto industry? Hmmm...I guess I should fully trust them at their word. After all, I have never overpaid for anything automotive.
Ned Merrill (In The Biswanger’s Pool)
They should do away with the Sea Salt and Vinegar flavor.
Bruce Maier (Shoreham, BY)
The reason to bring chip manufacturing here is strategic, as depending on TSMC is fraught with peril as China proper eyes Taiwan. Recent shortages in chips are the product of two different issues. First, the demand for desktops and laptops peaked during at-home working during the pandemic, with demand outpacing supply. Second, with Covid shutting down factories and transportation systems, supply chain shortages of even simple chips stalled manufacturing of many goods, from refrigerators to autos. The desktop and laptop demand has reversed, and there is some reprieve in the supply of some chips. But the long term reasons to invest in local chip manufacturing remain, even in the light of short term trends.
TheBackman (Berlin, Germany)
If we were telling people to stop selling nuclear bombs to China, no one would bat an eye. Seems like the chip makers like to make super specialized chips rather than chips that can be more customized by software. Tesla kept its chip orders and when chips got scarce used other chips and used software to make them work. Everyone thought "House prices only go up!" until they come crashing down. Intel did not see Apple's own silicon coming and Whoops! As long as short term (this quarter) profits, and thinking in terms of the quarter along with Investor Uber Alles (Investor supremacy) without thinking long term, we will see most of America slide. Japan is still the third largest economy, it had protections in place for decades and America went along. Japan thinks in decades not quarters. China still has protections in place and came from being a third world country 50 years ago to the 2nd largest economy with the help of the US bending over and taking it. China too thinks in decades and has a dictator who will keep every protection he can in place. As long as we tie Executive Salaries to manipulated stock prices and do not think about long term our companies will fail. Who in the US thinks long term? Jeff Bezos at Amazon and Elon Musk at Tesla. Clearly, they do not know what they are doing because they are poor and their companies are sooooo small.
Dave (Mass)
The photo of the Taiwanese Semiconductor employees says a lot. They look like they're under 15 years old. China makes nearly all our goods from tv's to shoes to pens etc. What kinds of working conditions do they work under and what age are these people churning out our future landfill donations? Over decades American consumers have refused to pay more for American made products which has brought us to where we are today. American Corporations as well as those around the world have exploited these workers and their cheap labor. Our dependency on cheap labor is taken for granted. Perhaps we've dug a hole so deep for ourselves we are far beyond any hope of getting out ?? Addiction is a terrible thing !
Joinery Piling Up (Charlottesville)
@Dave I don’t think labor is so cheap in Taiwan.
Dave (Mass)
@Joinery Piling Up .....You would.... if you tried to live on their hourly wages and benefits here in the US. Bad enough trying to make a decent wage for work done here and survive much less working for the wages they work for in other countries including Taiwan. It's human nature to take advantage of others. Slavery had to be abolished wasn't going away on it's own. They didn't come up with the motto..Live Better Work Union ,,,for nothing !! There are very good reasons for that !
waun (Australia)
Machine is made in Europe. Chips are manufactured in Asia. US is ahamelessly pretending the chips belong to him.
RB (Nashua, NH)
@waun Design and logic is from the US.
Bruce B (New Mexico)
Did makers of computer chips use inflation to hike prices and generate huge profits? Are makers of computer chips still making a fair profit?
Scott (Pdx)
Where is AOC in all of this? Gelsinger makes $179,000,000 himself last year; he comes to Biden this year begging for money like someone living in a tent next to the highway; now Gelsinger wants to axe thousands of American jobs? How about you take a pay cut Pat? No American should need more than a few million dollars per year, and even that sounds obscene.
Bruce Maier (Shoreham, BY)
@Scott Next time, explain who Gelsinger is. And while I concur that executive pay is way out of line, do not confuse millions with billions.
P. Story (Cabo Rojo, PR)
If China didn't have a good reason to invade Taiwan before it sure does now.
Bruce Maier (Shoreham, BY)
@P. Story It needs the factories intact, the people willing. The invasion of Ukraine shows the problem with military action of the kind that would be required to secure Taiwan. If China wanted to use its military to gain something of value, it should consider lands north of China, in eastern Russia, as those lands are no longer defended as Putin has overstretched his hand.
mc (Nassau)
“Morris Chang (founder and head of TSMC) told Pelosi in stark terms that Washington’s efforts to rebuild chip manufacturing at home were doomed to fail.”
Bruce Maier (Shoreham, BY)
@mc Really? Vested interest? He might be correct, except that we must protect against China controlling all of the advanced chip manufacturing with their invasion of Taiwan, no matter how unlikely.
Billy The Kid (San Francisco)
Oh boy! Cheap RAM and Solid State Drives! Time to upgrade those old systems.
Bruce Maier (Shoreham, BY)
@Billy The Kid Old systems won't be able to run Windows 11 in 2025, which is around the corner. BTW - so far, that is not the case. I can say that the cost of SSD has risen over the short term, hoping it descends.
Blanche White (South Carolina)
No mention here of the increased demand for chips for the increased spending by the Pentagon. These companies's shifting sands contain a Bonanza on every horizon. They won't be in the breadlines.
Shaun Narine (Fredericton, Canada)
There is a very good chance that the increasingly aggressive US attempt to destroy China, cripple its economy, and undermine its tech sector will backfire spectacularly. What is now happening is that chips and other tech bought by China from the US will now inspire Chinese companies and technology that did not exist in China before in order to fill the gaps that the US is trying to create. The US tech companies will permanently lose the biggest market in the world and will also have to contend with new Chinese competitors in fields where they did not exist before. This may take a little time, but it is a highly probable outcome.
NorthernVirginia (Falls Church, VA)
@Shaun Narine There is a much better chance that China will now fall far behind most of the developed world.
Scott (Texas)
@NorthernVirginia I agree. China has blatantly stolen high performance IP for at least 2 decades. Look up the news on Huaweii. They stole Cisco IP. The copied user manuals even had the same typos as Cisco’s originals. U.S. companies withdrew mfr from China because their mfr equipment was run on weekends to create exact clones to sell via Amazon for a fraction of the cost. Definitely we need to protect our high performance IP (Intellectual Property).
dc (florida)
There is no way China catches up they are 10 years behind minimum that is why Taiwan is of such strategic importance.
AV (Seattle)
For those unfamiliar, here’s how chip design works for western markets. The chips are designed in the west, or India, using American design software. The active part of the chips is made in Taiwan. Then the chips are packaged into a form that can be assembled on to circuit boards. The packaging happens in Malaysia or the Philippines. The circuit board assembly and the rest of the product hardware that we touch and feel is done in China. In general.
Usok (Houston)
China is the largest industrial production country in the world. She needs a lot of chips to make the final products. Biden's decoupling policy of selling chips to China reduces the chip demands. It undermines the globalization principle and erects walls to prevent cooperation. The bottom line is that it will drive up costs and create inflation. In the meantime, both our companies and Chinese companies will suffer. No winner will emerge in this scenario.
NorthernVirginia (Falls Church, VA)
@Usok wrote: "It undermines the globalization principle and erects walls to prevent cooperation." It turns out, globalization was overrated. The walls being erected are to keep the Chinese out. As far as preventing cooperation, you are correct: we will no longer cooperate and assist the Chinese to steal our intellectual property.
tedc (dfw)
@NorthernVirginia remember the ISS and the Beidou GPS system. need a new hard drive to reboot your memory.
Scott (Pdx)
@NorthernVirginia And, to be fair, China blocks Facebook and New York Times and Google and God forbid even Wordpress, so what goes around …
Cooper 59 (Fairfax, VA)
We need to build our own superchip manufacturing capability even though it will be much more expensive than buying them offshore.
Freespeak (Georgia)
Free market thinking and unrestrained greed has for years provided our implacable enemies with the technology to destroy us. Short term goals and investor demands vs. long term goals for domination. The West has created its own decline with microchips for export and binging on imports.
gARG (Carrborro, NC)
It blows my mind that we spend massive amounts on "self-defense" and then allow a foreign entity under direct threat from an adversary to monopolize a critical defense technology that takes years to establish. This is proof that our defense spending is just another corrupt cash grab (yes, I know Eisenhower warned us!). If defense were there sole objective, this scenario, unfolding in slow-motion over many years, would never have developed.
dc (florida)
It started when Reagan showed up with his deregulation,trickledown,world labor force ideas.
BayArea101 (Midwest)
The business has always had its booms and its busts. For the reasons cited, the cycles have become more significant during the past three years.
Kevin (Colorado)
If the chip manufacturers won't commit to improving production due to normal business cycles, then the US needs to try another way to ensure we have some significant production capacity. This pandemic has shown clearly that the US should be ensuring it has access to certain manufactured goods via a robust supply chain, originating here if necessary. If the US manufacturers are holding out for more money, we should be using carrots and sticks to make it happen one way or another. Maybe making plans for the federal government to sponsor their own, new chip house would convince the existing chip manufacturers to up their game?
Matt (San Mateo, CA)
@Kevin There's no indication in this article that major US manufacturers have made major changes to plans for new plants. Micron states clearly that it will move ahead with its planned new fabs. Intel says it will build the shells and make decisions about what equipment to put in them afterward. That's pretty normal operating procedure.
AP (San Jose, CA)
@Matt Exactly. The focus of the article is the typical oversupply in the cycle that has existed for decades. I've lived thru this throughout my whole career in the industry. But contrary to the author's conclusions, this is NOT primarily related to the recent legislation and ongoing investments by major players. That investment is aimed at finally mitigating giant geopolitical and national security risks faced by the West - tsmc's overwhelming technology share and dominance while located is Taiwan, and China's drive for IP to build their own chip industry.
Edward Allen (Spokane Valley)
The most obvious reason for all of the supply line craziness of the last 5 years would be the pandemic. It is not, however, the only reason. A very real issue was the massive spike in demand for high-end computer graphics processors caused by cryptocurrency, more specifically ethereum. The crash of cryptocurrency, and more importantly the shift of ethereum from proof of work to proof of stake has removed this excess demand from the market. We should not feel sorry for the companies that produced into this. We should not feel sorry for the companies that are now suffering after they participated in the scam, the energy wasting climate destroying speculative scam.
artist (earth)
Cryptocurrency mining uses ASICs, not GPUs.
Deregulate_This (murrka)
America agrees to the One-China policy, which means Taiwan is part of China. The hubris of these industrialists to claim that China can't develop anything on their own is off the charts. China has a policy to produce high-end manufacturing now. The original goal of the industrialists was to grow a middle-class in China and India and abandon the middle-class in the USA. They didn't factor in nationalism of these 2 societies. Their plan was to manufacture only low-end goods in China and do all the "design" in America. Now, China is full of inventors, because they have the manufacturing. Those 2 things are linked. Unfortunately, that concept isn't known in the Harvard circles. Biden had never met a Free Trade Agreement he didn't support. His giant giveaway to the semi-conductor industry is just boosting companies that already got money for moving those plants to other countries. These firms will continue to manufacture most everything in China while taking billions of our tax dollars and will move some lower end manufacturing to Malaysia (because they have slave-labor and corporations love that), and other countries they can exploit.
Edward Allen (Spokane Valley)
@Deregulate_This I'm not generally in favor of trade restrictions, as trade is the best way to achieve peace, or at least it used to be. I do share some of your suspicion that these trade restrictions won't be effective, but smarter people than me with actual degrees in economics disagree. I don't think the point of these is to prevent China from manufacturing high-end computer chips. They are between 5 and 15 years behind the rest of the industry depending on who you ask. That's the blink of an eye really. The point of these restrictions is to prevent the use of American technology in the meantime. My initial complaint was that I didn't see how this could possibly work, when the chips in question are the same chips that I can order as a consumer. The difference, however, is in supply and support. I can contract with Nvidia to build a supercomputer made of thousands of Nvidia 4090s, if I can afford it, but Huawei can't. Huawei will have difficulty getting what it needs, and that is the entire point of the exercise.
MMya (DC)
@Deregulate_This Somehow you missed the plans for new chip plants in Ohio (Intel), not to mention Micron and Wolfspeed in NY state. These "giveaways" are a boost to domestic industry and manufacturing. At the end of the day, it won't result in all chips being made here (very low cost commodity chips may need to stay in low cost manufacturing locations). However, these are steps in the right direction to encouraging growth in the US.
M (Brooklyn)
@Edward Allen "smart" people with degrees in economics are the problem not the solution. It feels to me like driving forward by looking in the rear vision mirror. They are analyzing data from the great depression and drawing conclusions about inflation and manufacturing without ever having worked in any of these industries or understood in a truly forward facing way.
B (Vancouver)
My company has been waiting over a year for a specialty microprocessor. The lead time has been > 60 weeks for over a year now. I applaud the efforts to build semiconductor factories within the US, but I’m not sure the proposed locations of said factories is ideal. These aren’t auto manufacturing plants. These are tiny and highly complex parts with drastically different machinery requirements. I hope these companies can draw the talent they need to make these factories successful.
Mike (NY)
They'll be all right with that 52 billion stimulus.
Dthing (Hong Kong)
China buys $600 billion worth of chips per year.
Koret (United Kingdom)
This downturn is called capitalism. These chip companies need to manage their businesses in the light of these new circumstances in the market. Perhaps also consumers do not see the logic in buying new smart phones and computers every year and may also be worried about the adverse climate impacts of discarding these still usable products.
Greg (Washington DC)
Get Chips made in USA , that the driving for the slowdown. The demand for chips is very very strong. Go GO Go
Bill White (Ithaca)
The pandemic recession was short and quick but it seems like its echo is still reverberating and might continue for sometime until supply and demand settle down.
Why would a company establish a facility in frozen, small town Syracuse. Or Rust Belt, mistake by the lake Ohio? People are leaving such places. Good luck attracting talent.
Unconditional Conditioner (Uranium-Bator)
“People” will gladly stay if they have decent employment. That is the greatest way to revitalize. Intel plant in OH, Shell plant in PA are great for those states.
artist (earth)
Millions of people live there and want to work. They’ll need to be trained, and Intel will train them. It’s not rocket science—which, by the way, also requires training.
Chris Wren Stanford (Gold Spike)
Syracuse has an abundance of talent, especially given the several top universities within 60 miles of it, no less than those a bit further. It has an easily accessible airport, and a system of freeways easing navigation locally and to all points on the compass. It has land to build and water for manufacture as well as expansion of suburbs.
eastave (ny)
The spending by Micro will be100 billion, not 100m
ben nicholson (new harmony in)
If China invades Taiwan, at what point would the US bomb the chip plants?
alistair48 (Melbourne, Australia)
@ben nicholson There is virtually zero chance of a physical invasion of the island since there are 101 ways of crippling the place without putting lives at risk. The folk who talk up the invasion possibility have there own obvious motives. In any event, US bombing wouldn't be necessary since a self-destruct policy is believed to be in place.
Kroobey (West Coat)
@Ben Nicholson Officially, our policy hasn’t changed. Reading your question I thought of Kissinger. China ramped up after remarks from the President followed by a trip by the Speaker, not arranged in coordination with the White House, and now the predictable re-election of Xi. In my ninth decade I’m convinced quiet diplomacy, unaccompanied by advance denunciation and junkets, has a better chance at what is always a roll of the dice. Poke the bear in a pink suit traversing Taiwan, the Saudi’s (pariah) and Putin (must not remain in power), result-wise does little but influence opinion and perhaps get Congress to approve aid but even there is unnecessary I’m not sure such a Kissinger message would reach Biden, simply because I’m not sure his advisers have that perspective, his ear, or both.
Michael (Georgia)
@ben nicholson If China didn't bomb it first, Taiwan would bomb it themselves. For China, if they can't get chips from Taiwan, then no one can. For Taiwan, they know that keeping the island is a long shot, and they would use a scorched-earth policy to ensure that China bleeds itself out trying to pacify the now worthless island.
Unconditional Conditioner (Uranium-Bator)
It is called market economy. Unlike planned economy cir. 1991 USSR, it lets individual manufacturers predict supply and demand issues. The Soviet Russia tried it differently and failed.
Ben (Long Island)
The shortsightedness and myopia of the executives at these companies are pretty breathtaking, what if China (like it says it will do) seizes Taiwan and those chips are no longer available to the US? Will they then scramble to construct chip factories that take several years to build?
c (Pennsyltucky)
@Ben that's a lot of what ifs for a company. I think the CEOs are doing their duties to the companies and shareholders by acting rationally.
Blanche White (South Carolina)
@c Companies that obtained great wealth due to American systems and institutions also have great obligations to the country that nourished them. If they fail to see that, they should be "made" to see it.
alistair48 (Melbourne, Australia)
@Ben When has China ever refused to supply anything to a willing buyer? The Taiwanese chip maker has factories in China but makes the high end chips in Taiwan. As you'd expect, the Taiwanese economy is highly integrated with mainland China and nothing will change that. Geography remains geography.
Ivermarkt (Pasadena)
memory chips, which perform calculations and store data in personal computers, tablets, smartphones and other devices. Data storage is the one that always cracks me up. Occasionally I stumble into the place in my computer where the data is stored and see so much saved junk that I barely even remember yet what a relief to know it’s stored for whatever unknown reason and billions will be invested to save even more. Our quest to permanently store every bit of data seems as futile and misguided as trying the reverse climate change without addressing the underlying problem of human overpopulation and excess consumption. We tend to let our technology guide and rule us rather than the other way around.
Sharad (Texas)
@Ivermarkt Not sure why data storage might crack you up. Now that we have computer chips capable of crunching stored data at dizzying speeds, and we have A.I models to predict outcomes based on ingesting exabytes of data, we are inching closer to solving intractable problems like cancer, climate change and even poverty. At the root of all this is the ability to store massive amounts of data efficiently and be able to retrieve it quickly. Trust me, this is no laughing matter.
Kroobey (West Coat)
Clear the cache. All at once, which you may regret or monthly, in parts.
Ivermarkt (Pasadena)
@Sharad, yeah, right, from the state that now allows unrestricted carry. Tell me more, please, and the data crunched to come up with that crazy.
Aging Engineer (Indianapolis)
My company uses the chips these guys make. They need to stop hand-wringing over slackening demand and get distributors and customers the parts they need. Disty shelves are still empty of the stuff we buy. The price is 2x the old price when we can find parts. Yup, the party's over and some purchasing power might return to buyers for the first time in 2 years. Y'all need to acclimate to the kind of market we had before Covid hit when a dollar's worth of stuff cost a dollar and get shipped sooner than "52 weeks ARO".
You're lucky at 2x. The processors we use are at 20x.
TW (Oakland)
@Aging Engineer But are you willing to pay the price for manufactures to keep inventory in stock? I hear the same complaints in my business - always for the items that sell out faster than expected. But what I never see is people buying the items that that sell slower than initially expected - those just sit in inventory for years and usually are destroyed. You want uninterrupted supply, then sign a long term contract.
Steve (Western Massachusetts)
Sounds like a lot of super profitable companies are suddenly complaining about short-term losses as they line up for another round of government subsidies. How much federal and state taxes are these corporations paying?
Edward Allen (Spokane Valley)
When we're talking about investments into infrastructure that will take 5 to 10 years before there is a return, why are we sweating a short term dip in demand?
See also