Comment by simonh | Hacker News Reader

Comment by simonh | Hacker News Reader

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So this seems to be about increased demand for high end components driven by increased IT equipment purchases during the lockdown as people depend on this stuff more. That's the implication from the article.

Meanwhile I'm also reading about chip shortages affecting car manufacturers, and possibly some other industries. The dynamic there seems to be that car makers (and possibly others) cut orders drastically early in the lockdown, which means component makers shut down manufacturing capacity and it's taking a long time to ramp it up and also clear the backlog of orders as demand came back earlier than expected.

So this seems to be two completely different effects going on. I know very little about these industries, but I wouldn't be surprised if there's a meeting of these effects in the middle. High end devices often have some lower end components (peripheral and glue logic on desktop motherboards for example) in addition to the potentially pricier main CPU.

Is that the story?

So to over simplify.

1. Car Manufactures canceled their order (X) for 6 months.

2. Fab sold those capacity to others

3. Demand for All electronics increases because of WFH ( and possibly bitcoin )

4. Demand for Car actually raised during COVID.

5. Now Car Manufacture want X, their original order, another X for their next 6 months, as well as 0.5X where 0.5 was the increase in demand. So total 2.5X

2.5X increase in order to catch up with their production All while other electronics such as iPhone 5G, Tablet, PC are selling record number in recent years.

It also doesn't help when Samsung's yield are failing yet again

Now let's take this even further. Apple is predicted to sell record number of iPhone, Mac, and iPad. TSMC will do preferential treatment to all orders relating to Apple with Apple courting their suppliers. So that uses up those bigger nodes as well. You end up having industry fighting for whatever that is left.

And just like any product or commodities, you have people hoarding them for profits. It is the same with PS5, Switch, Graphics Card or any other with limited quantities and high demand. This will attract interest to trade them and make money. Which add even more strain to supply chain.

From a Supplier perspective, all of a sudden you are looking at a market with seemingly unlimited demand and you have limited supply. This scenario is similar to what happened with DRAM and NAND in 2015 - 2019. Although the cause is different.

I think the focus on automotive manufacturers has been exaggerated. Automotive orders are definitely a contributing factor, but the popular narrative is putting too much emphasis on a single industry.

The reality is, like you said, demand for consumer devices across the board has spiked. Not just cars, but phones and video game consoles and everything else. Cars are a part of it, but I don't see how we would have avoided a chip shortage if auto makers hadn't cancelled some previous orders and then resubmitted them.

I think media latched onto it as the most compelling story. The cost of the chips is only a tiny fraction of the cost of the whole vehicle.

Cellphones, game consoles, smart gadgets? Ok, chip shortage, seems understandable. Whole car factories shutting down because they can't get a few grams of chips per car feels like a dramatic and new kind of supply chain failure.

> Automotive orders are definitely a contributing factor, but the popular narrative is putting too much emphasis on a single industry.

Yes. All because no one give a damn before the Car Manufacture started to become very vocal about it, politician picked it up because it affect jobs, and jobs affect vote. Then it become a news story in mainstream media, then people started blaming TSMC, that also fit the narrative of relying on TSMC being far too dangerous for National Security. Then people want Digital Sovereignty ( whatever that means ). Then companies will ask for government incentives...... and on and on and on.....

Who were those others in point 2)? That's the question.

Either they would want the capacity either way, or it's some kind of customer induced by temporarily reduced prices, so price sensitive.

Specific to Bigger ( Older ) Node, they have been in very tight Supply for a fairly long time. Possibly going back to 2018. Fab has been built but still not catching up with demand. So when there are capacity to be filled. People grab them.

I am not really familiar with the industry, why will TSMC give preferential treatment to Apple orders?

In a number of cases in the past, Apple has financially backed suppliers to increase manufacturing capacity for some product line Apple was interested in, because Apple wanted millions of that part, at tight tolerances, and the company could only produce perhaps hundreds of thousands. In exchange for paying for the buildout, they get a permanent Friends and Family discount on that manufacturing line. Lately it seems they've opted instead to pay for preferential scheduling on the backlog.

Because Apple has super deep pockets and TSMC is a for-profit corpotation with shareholders

To over simplify again, your biggest customer always get preferential treatment. It really is just business, and nothing to do with industry.

Apple buys capacity by by paying TSMC. What it means is that they pay to get preferential treatment for certain chip runs.

A couple of other things that happened.

Intel has been struggling to shrink their dies, so they went to TSMC for some of their chip production.

Apple ditched intel with their latest macbooks (with the M1), which also requires more TSMC capacity.

Not to mention AMD moved from mostly using Globalfoundries to using TSMC for most of their new CPU/GPU including consoles. And AMD have had quite the resurgence over the last 5 years in terms of sales.

It's definitely a confluence of demand scenarios which would have been difficult to plan for at the best of times and then there was the overall disruption to supply chains and long term planning that Covid would have presented.

From what I understand, Intel's announcement that they would use TSMC was basically hot air. TSMC's capacity was already tapped, and they have little incentive to use it for a competitor when it's been planned for other customers since years back.

Aren’t they using them for their upcoming dGPU production?)

https://www.techpowerup.com/277134/intel-xe-hpg-to-be-built-...

IIRC, Intel only planned on using TSMC to produce some of their low cost celeron chips.

> component makers shut down manufacturing capacity and it's taking a long time to ramp it up

Not really. The component manufacturers canceled their fab time contracts with fab companies as they could not afford to hold onto them if their customer (the car manufacturers) were not buying from them. And once they did that fabs just sold the capacity to the next buyer.

So now the component manufacturers only option is to buyout the contract from someone else (really really expensive with current available capacity) or just wait until the contracts expire to get a chance to bid for them again. Also as fab time is auctioned if the shortage still continues then the fab time will be really expensive even then.

Component makers did not shut down manufacturing capacity, they just re-allocated the timeshares formerly set aside for car manufacturers to other customers.

Notice that there's no shortages of Intel CPUs, and few serious shortages of console gaming systems. That's where the manufacturing capacity went.

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