To understand why the $450 billion semiconductor industry
has lurched into crisis, a helpful place to start is a one-dollar part called a
display driver.
Hundreds of different kinds of chips make up the global
silicon industry, with the flashiest ones from Qualcomm Inc. and Intel Corp.
going for $100 apiece to more than $1,000. Those run powerful computers or the
shiny smartphone in your pocket. A display driver chip is mundane by contrast:
Its sole purpose is to convey basic instructions for illuminating the screen on
your phone, monitor or navigation system.
The trouble for the chip industry -- and increasingly
companies beyond tech, like automakers -- is that there aren’t enough display
drivers to go around. Firms that make them can’t keep up with surging demand so
prices are spiking. That’s contributing to short supplies and increasing costs
for liquid crystal display panels, essential components for making televisions
and laptops, as well as cars, airplanes and high-end refrigerators.
“It’s not like you can just make do. 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 crunch in a handful of such seemingly insignificant
parts -- power management chips are also in short supply, for example -- is
cascading through the global economy. Automakers like Ford Motor Co., Nissan
Motor Co. and Volkswagen AG have already scaled back production, leading to
estimates for 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 knocked out swaths of U.S. production. A fire at a
key Japan factory will shut the facility for a month. Samsung Electronics Co.
warned of a “serious imbalance” in the industry, while Taiwan Semiconductor
Manufacturing Co. said it can’t keep up with demand despite running factories
at more than 100% of capacity.
“I have never seen anything like this in the past 20 years
since our company’s founding,” said Jordan Wu, co-founder and chief executive
officer of Himax Technologies Co., a leading supplier of display drivers.
“Every application is short of chips.”
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The chip crunch was born out of an understandable
miscalculation as the coronavirus pandemic hit last year. When Covid-19 began
spreading from China to the rest of the world, many companies anticipated
people would cut back as times got tough.
“I slashed all my projections. I was using the financial
crisis as the model,” says Rasgon. “But demand was just really resilient.”
People stuck at home started buying technology -- and then
kept buying. They purchased better computers and bigger displays so they could
work remotely. They got their kids new laptops for distance learning. They
scooped up 4K televisions, game consoles, milk frothers, air fryers and
immersion blenders to make life under quarantine more palatable. The pandemic
turned into an extended Black Friday onlinepalooza.
Automakers were blindsided. They shut factories during the
lockdown while demand crashed because no one could get to showrooms. They told
suppliers to stop shipping components, including the chips that are
increasingly essential for cars.
Then late last year, demand began to pick up. People wanted
to get out and they didn’t want to use public transportation. Automakers
reopened factories and went hat in hand to chipmakers like TSMC and Samsung.
Their response? Back of the line. They couldn’t make chips fast enough for
their still-loyal customers.
Himax’s Jordan Wu is in the middle of the tech industry’s
tempest. On a recent March morning, the bespectacled 61-year-old agreed to meet
at his Taipei office to discuss the shortages and why they are so challenging
to resolve. He was eager enough to talk that interview was scheduled for the
same morning Bloomberg News requested it, with two of his staff joining in
person and another two dialing in by phone. He wore a mask throughout the
interview, speaking carefully and articulately.
Wu founded Himax in 2001 with his brother Biing-seng, now
the company’s chairman. They started out making driver ICs (for integrated
circuits), as they’re known in the industry, for notebook computers and
monitors. They went public in 2006 and grew with the computer industry,
expanding into smartphones, tablets and touch screens. Their chips are now used
in scores of products, from phones and televisions to automobiles.
Wu explained that he can’t make more display drivers by
pushing his workforce harder. Himax designs display drivers and then has them
manufactured at a foundry like TSMC or United Microelectronics Corp. His chips
are made on what’s artfully called “mature
node” technology, equipment at least a couple generations behind the
cutting-edge processes. These machines etch lines in silicon at a width of 16
nanometers or more, compared with 5 nanometers for high-end chips.
The chip's makers have seen their shares soar with strong
demand
The bottleneck is that these mature chip-making lines are
running flat out. Wu says the pandemic drove such strong demand that
manufacturing partners can’t make enough display drivers for all the panels
that go into computers, televisions and game consoles -- plus all the new
products that companies are putting screens into, like refrigerators, smart
thermometers and car-entertainment systems.
There’s been a particular squeeze in driver ICs for
automotive systems because they’re usually made on 8-inch silicon wafers, rather than more advanced 12-inch wafers.
Sumco Corp., one of the leading wafer manufacturers, reported production
capacity for 8-inch equipment lines was about 5,000 wafers a month in 2020 --
less than it was in 2017.
No one is building
more mature-node manufacturing lines because it doesn’t make economic sense.
The existing lines are fully depreciated and fine-tuned for almost perfect
yields, meaning basic display drivers can be made for less than a dollar and
more advanced versions for not much more. Buying new equipment and starting
off at lower yields would mean much
higher expenses.
“Building new
capacity is too expensive,” Wu says. Peers like Novatek Microelectronics
Corp., also based in Taiwan, have the same constraints.
That shortfall is showing up in a spike in LCD prices. A
50-inch LCD panel for televisions doubled in price between January 2020 and
this March. Bloomberg Intelligence’s Matthew Kanterman projects that LCD
prices will keep rising at least until the third quarter. There is a “a dire shortage” of display driver chips,
he said.
Aggravating the situation is a lack of glass. Major glass makers reported accidents at their production sites, including a blackout at a
Nippon Electric Glass Co.’s factory in December and an explosion at AGC Fine
Techno Korea’s factory in January. Production will likely remain constrained at
least through summer this year, display consultancy DSCC Co-founder Yoshio
Tamura said.
On April 1, I-O Data Device Inc., a major Japanese computer
peripherals maker, raised the price of their 26 LCD monitors by 5,000 yen on
average, the biggest increase since they began selling the monitors two decades
ago. A spokeswoman said the company can’t make any profit without the increases
due to rising costs for components.
All of this has been a boon for business. Himax’s sales are
surging and its stock price has tripled since November. The U.S.-traded shares
gained 1.6% in New York Tuesday morning. Novatek’s shares closed up 5.6% in
Taiwan to a record high, pushing its increase for the year to more than 60%.
But Wu isn’t celebrating. His whole business is built around
giving customers what they want, so his inability to meet their requests at
such a critical time is frustrating. He doesn’t expect the crunch, especially
for automotive components, to end any time soon.
“We have not reached a position where we can see the light
at the end of tunnel yet,” Wu said.
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