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Even with new fabs coming online in several years, there will still be a need to balance the supply of advanced chips with traditional nodes, says one supply chain expert.
The pandemic helped ignite a global chip shortage hurting many vital sectors which has recently led to historic investments both abroad and in the US by government and private chipmakers.
In the US alone, the CHIPS Act approved in August provides $52 billion in grants and subsidies for new fabs and has elicited a flurry of investor responses. At least seven major semiconductor companies plan to build more than $200 billion in fabs in coming years, according to an updated tally by Fierce Electronics.
The response to the CHIPS Act has been overwhelmingly positive, from chip producers and a bipartisan assortment of lawmakers. Still, new fabs will take years to build and equip before millions of chips can be produced every day. And many of the new fabs will be focused on advanced chips of 5nm or smaller, while traditional nodes will still be in demand like 28nm used by automakers that fell in short supply in 2021.
What happens in the next five years while more production from new fabs comes online? The answer is not clear cut.
Broadly speaking, chip shortages have led to increased chip production for some chip nodes in the past year. Customers have bought more chips than normal to stock up reserves while also meeting the terms of non-cancellable orders.
As a result, through the end of 2022 and into 2023, chip supplies are expected to be in surplus in many chip nodes, which analysts expect will be absorbed through much of 2023 by customers. Many analysts have termed 4Q 2022 and much of 2023 a correction period, which will likely result in reduced orders and revenues for chip producers.
In fact, global chip sales growth has stalled in recent months and August sales declined by 3.4% compared to July, the largest drop since February 2019, according to the World Semiconductor Trade Statistics organization.
“Through 2022, there’s a surplus for OEMs and contract manufacturers and 2023 will look like a correction and not a crash,” predicted Jennifer Strawn, vice president of sales and sourcing for the Americas and EMEA for Rand Technology, a global component and supply chain solutions company.
“The surplus needs to be consumed through 2023 and that will allow fabs and manufacturers to catch up a little bit,” Strawn said in an interview with Fierce Electronics. Strawn works closely with many of the largest chipmakers and their customers in predicting and meeting demand.
Despite the positivity generated by the CHIPS Act in the US and other measures around the globe, “nothing will be corrected in terms of the new fabs or investments and those will take several years,” Strawn said.
After 2023 and the correction has been absorbed, Strawn predicts new consumer cycles in digitization, driving the need for more chips, which “will explode again and we still don’t have all the support we need.” She said advancements in AI, electric vehicles, IoT and 5G buildouts will be the drivers. At that point, “it’s just constant and will still be the wrong mix” as some companies build products requiring older chips and wafers while many chipmakers move to more advanced nodes. “We’ll still have to find a balance,” she said. “It’s still very unpredictable” in 2024 and 2025, or even longer.
Meanwhile, certain chip categories are going to be constrained for the next 18 months, she said. “Anything having to do with power management is still highly constrained,” she added. “We’re working closely with customers because after ’23…there’s still problems coming down the pipeline.”
All of this is not a criticism of the CHIPS Act, she said. “When the CHIPS Act was originally announced, people may have been a little skeptical, [saying,] is this going to be effective? Now you see more steps behind it. I’m optimistic and not just in our CHIPS Act but globally in conversations with customers and what I’m hearing from factories directly and the steps they are taking with redundancy or to protect themselves. People know in this moment it’s critical to do the right things for national security globally moving forward. It’s been eye-opening for geopolitics. With natural disasters, pandemics, we can’t be dependent on one way anymore. We’re highly motivated to be sure we have the right protections.”
Even with the CHIPS Act in the US in place and the promise of future fabs, the supply of basic materials like copper, cobalt and lithium and the potential for shortages of neon gas used in chip production could face shortages due to geopolitics.
“With lithium [needed for EV batteries], it’s not only where it’s mined but who owns the rights,” she said. “Lithium mining is incredibly difficult and taxing and poses problems.”
Electronics new fabs coming online in several years, there will still be a need to balance the supply of advanced chips with traditional nodes, says one supply chain expert.
RELATED: Here’s the latest hot list of cool chip fabs coming to the US
By: Matt Hamblen
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