Giant Factories for Microchips
Giant Factories for Microchips
The shortage of semiconductor microchips keeps getting worse. Why can’t we just make more? Bloomberg explains…
Chip plants run 24 hours a day, seven days a week. They do that for one reason: cost. Building an entry-level factory that produces 50,000 wafers per month costs about $15 billion. Most of this is spent on specialized equipment – a $60 billion market last year.
Three companies — America’s Intel, South Korea’s Samsung and Taiwan’s TSMC — account for most of this investment. Their factories are more advanced and cost over $20 billion each.
This year TSMC alone will spend as much as $28 billion on new plants and equipment. Compare that to the US government’s attempt to pass a bill supporting domestic chip production… for just $50 billion spread over five years.
Once you spend all that money building giant facilities, they become obsolete in five years or less. To avoid losing money, chipmakers must generate $3 billion in profit from each plant. But now only the biggest companies, in particular the top three that combined generated $188 billion in revenue last year, can afford to build multiple plants.
Here are some additional comments from Eoin Treacy in FullerTreacyMoney…
Semiconductor factories are largely automated so they were not particularly impacted by the global lockdowns. Demand for their products surged during the lockdowns as stay-at-homers bought new computers, smart phones and tablets
Factories running on thin margins and under constant threat from obsolescence do not operate with a lot of spare capacity. That is the primary reason we now have a semiconductor availability issue. The demand curve has accelerated well above the ability of supply to keep up. The increasing dependence of the automotive sector on chips has been building for a while and will contribute to the investment case for more supply.
In predicting how long this condition will last, demand is more important than supply. It takes years and billions in solid investment commitments to build a new factory. With the US, Europe and China laying plans to invest in additional new supply, a crash in prices has to be considered likely eventually when all of that new supply comes to market.
However in the short term the growth trend in demand is likely to remain firm and supportive.
