A one-dollar component called a display driver is a good place to start to understand, why the $450 billion semiconductor industry has stumbled into trouble.
The global silicon industry is made up of hundreds of different types of chips, with the most expensive ones from Qualcomm Inc and Intel Corp costing anywhere from $100 to over $1,000 each. Those power your powerful computers or your gleaming smartphone. In comparison, a display driver chip’s sole function is to relay simple instructions for lighting up the screen on your phone, monitor, or navigation device. The problem for the chip industry — and increasingly, businesses outside of technology, such as automakers — is that there aren’t enough show drivers.
Prices are growing because the businesses that produce them, can’t keep up with the increased demand. This is contributing to a shortage of liquid crystal display panels, which are used in televisions and computers, as well as vehicles, aircrafts, high-end refrigerators, which are pushing up prices. You can’t just make do for what you have. If you have anything else but a display driver, you won’t be able to develop your product, says Stacy Rasgon, a Sanford C Bernstein analyst who focuses on the semiconductor industry.
The shortage of a few apparently insignificant components, such as power management chips, is now affecting the global economy. Automakers such as Ford Motor Company, Nissan Motor Company, and Volkswagen AG have already reduced demand, resulting in an industry sales loss of more than $60 billion this year.
Before it gets better, the condition is likely to deteriorate. Swaths of US development were halted by a rare winter storm in Texas. The factory will be closed for a month due to a fire at a key location in Japan. Samsung Electronics Co. has warned of a significant imbalance in the industry, while Taiwan Semiconductor Manufacturing Co. has said it can’t keep up with demand, despite operating factories at 100% capacity.
The chip crisis arose from an understandable blunder, when the coronavirus pandemic struck last year. The car industry was caught off guard. During the lockdown, factories were shuttered, and demand plunged as no one could enter showrooms. Suppliers were ordered to avoid shipping parts, including chips, which are becoming increasingly important in automobiles.
Then, towards the end of last year, demand increased. People decided to get out and didn’t want to ride the bus. Jordan Wu of Himax is smack dab in the middle of a tech storm. The 61-year-old agreed to meet at his Taipei office on a recent March morning to discuss the shortages and why they are so difficult to overcome. He was so excited to chat that he agreed to an interview the same morning, Bloomberg News demanded it, with two members of his team joining him in person and another two joining by phone. Since automotive driver ICs are traditionally made on 8-inch silicon wafers, rather than the more advanced 12-inch wafers, there has been a specific squeeze.
Sumco Corp, a leading wafer manufacturer, announced that production capacity for 8-inch equipment lines was about 5,000 wafers per month in 2020, down from 6,000 wafers per month in 2017. Nobody wants to build more mature-node manufacturing lines because it isn’t profitable. Since the current lines have been completely depreciated, and fine-tuned for near-perfect yields, simple display drivers can be made for less than a dollar, and more sophisticated models for not much more. Investing in new machinery and starting with lower yields would result in significantly higher costs, increasing capability. Between January 2020 and March this year, the cost of a 50-inch LCD television screen doubled.
According to Matthew Kanterman of Bloomberg Intelligence, LCD prices will continue to rise until the third quarter at the earliest. According to him, show driver chips are in distressingly low supply. The shortage of glass aggravates the problem. A blackout at a Nippon Electric Glass Co. factory in December and an explosion at AGC Fine Techno Korea’s factory in January were among the incidents announced by major glass manufacturers. According to show consultancy DSCC Co-founder Yoshio Tamura, production will likely be limited at least through the summer this year. I-O Data Device Inc, a major Japanese computer peripherals manufacturer, increased the price of its 26 LCD monitors by 5,000 yen on average on April 1, which is the largest rise since the monitors were first sold two decades ago.
According to a company spokesperson, the company can’t make much profits without the price hikes, because component prices are increasing. All has been beneficial to the economy. Himax’s sales are soaring, and the company’s stock has tripled in value since November. Novatek’s stock rose 6.1 % to a new high on Tuesday, taking the company’s year-to-date increase to more than 60%.
Wu, on the other hand, is not happy. His entire company is based on giving customers what they want, so his inability to fulfil their requests at such a crucial time is frustrating.
