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An acute shortage of semiconductors has become a recurring theme in recent months, especially in the automotive industry. These are problems with accessing a sufficient number of the tiny and technically complicated small pieces that digitize and automate everything from cars to toasters.
And as Elbil24 wrote recently, some players expect the problem to persist for several years.
– Can be several years with delays
Facts about the semiconductor industry
- The word semiconductor, in English «semiconductor», comes from the fact that the material does not conduct current as well as a normal conductor of metal, but also does not insulate completely. The raw material can be, for example, silicon, germanium and selenium, which are processed and adapted to obtain the right properties. Semiconductors are the basis of modern microelectronics.
- The first semiconductors were made in the 19th century, but the industrial breakthrough came with the transistor radio in the late 1940s.
- Today, microscopic semiconductors connected together in computer chips are used to control processes in, among other things, computers, mobile phones, cars, hospital equipment, weapons, energy systems and white goods.
- Over the past 30 years, the semiconductor industry has grown from sales of just over $ 50 billion a year to over $ 440 billion a year.
- Consolidation and specialization have led to the industry being brought together in four large clusters of raw material manufacturers, tool manufacturers, design companies and factories – in Taiwan, mainland China, South Korea and Japan.
- Asia’s share of the market was 25 per cent in 2000. Ten years later, the market share had increased to 54 per cent.
- Last year, the market share for Asia and the Pacific (excluding Japan) was 61.5 percent. The United States accounted for 21.7 percent, Europe 8.5 percent, and Japan 8.3 percent.
- New technologies that drive development in 5G networks, electric cars, artificial intelligence, automation and robotization of industry and transport, smart cities, green energy, and increasingly electronics and computerized white goods, are moving the world into an increasingly digital age.
(Source: Deloitte, Pimco, industry association WSTS, TT)
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The semiconductor industry’s order books are explosive. It is now triggering a geopolitical battle for industrial power where China and the United States are in their respective corners of the ring.
– Taiwan is the new Saudi Arabia, says Geraldine Sundström in the German-owned American investment company Pimco. She is a portfolio manager and expert in the semiconductor industry.
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Increased geopolitical tension
In the same way that Saudi Arabia has done as an oil giant since the 1970s, Taiwan, according to Sundström, will play a key role when the two economic powers clash.
– There is already a tense situation around the South China Sea. This will be an area with even greater geopolitical tensions in the future, says Sundström.
She sees semiconductors as the oil of the new age, but with one important difference:
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So far this is running on one charge
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– In principle, you can not store semiconductors. Oil 20 years ago and oil today are the same thing. But semiconductors are made for specific purposes. They often become obsolete in a few years. This makes it much more complicated to secure the supply, she says.
It is a property that facilitates major barriers around the sector. Capital investments of perhaps hundreds of billions of kroner, long-term partnerships with large industrial customers, political support, and successful research and development for many years are required to be able to start a competitive semiconductor factory.
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The US and the EU will bet
The United States’ share of global semiconductor production has fallen from 37 to 12 percent since 1990, despite the fact that Asian giants such as Taiwanese TSMC and South Korean Samsung have built factories in the United States.
President Joe Biden will reverse the trend and invest $ 50 billion in building more production in the United States. There is also a lot of talk about American Intel having to move production home.
In Europe, the situation is even gloomier in the same 30-year perspective. Swiss ST Microelectronics, German Infineon and Dutch NXP Semiconductors and ASML are still major players in the sector, but their production is spread all over the world.
– The simple explanation for this is that we have been outcompeted by better and cheaper products from other countries, says Mats Kinnwall, who follows the development as chief economist for the Swedish industry association Teknikföretagen.
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– In China’s trap
EU Industry Commissioner Thierry Breton recently got 22 member states to sign a letter of intent where the goal is for the EU to double its semiconductor production in ten years, to 20 percent of the world’s supply.
– One is afraid of ending up in the lap of China, Kinnwall says.
– There should be arguments for European production if you are afraid of ending up in a blackmail situation, he adds.
But from an economic perspective, he does not think that the EU’s strategy has anything to do with it.
– I am not a champion of large, state-run investments where politicians and bureaucrats point out where the growth industries of the future will be. Basically, I think the market is better suited to handle it, says Kinnwall.
The corona pandemic has led to disruptions, partly as a result of restrictions to limit outbreaks. But despite that, sales of semiconductors increased 6.8 percent last year, to around 3.610 billion kroner, according to the trade association WSTS. This year, growth is expected to be 10.9 percent.
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Worsened semiconductor deficiency
But logistics and production problems are widespread. On top of the effects of shutdowns and warehouse cleaning during the pandemic, Texas was hit by an extreme cold wave in February this year. This hit hard semiconductor factories like Samsung, Infineon and NXP in the US state.
Shortly afterwards, Renesas Electronics’ semiconductor factory outside Tokyo was hit by a major fire. This affected car production directly.
Almost all car manufacturers, also in our neighboring country Sweden, currently report more or less serious production disruptions due to semiconductor shortages. In the United States alone, there is talk of a production loss of 300,000 vehicles and tens of thousands of lost jobs.
The situation is likely to worsen in the second quarter that we are now in.
The problem also affects other sectors, such as electronics, telecommunications, white goods and energy. The semiconductor shortage pushes up the price of both semiconductors and the products they are used in.
– It can be a fairly long period before you get a balance between supply and demand for these goods, says Kinnwall.
Expect significantly cheaper electric cars
Structural shift
The stable tip is that the most acute deficiency can at best be remedied in a few months or half a year. But really, the semiconductor shortage has only just begun, Sundström believes.
– Of course, part of the shortcoming will be remedied. But we are facing 5-10 years with very limited access to semiconductors, she says.
The imbalance that worries her is not about production and delivery problems, but about a sharp increase in demand. The increase in demand will be in double digits over the next five years, according to Sundström.
– I believe that the trend will continue to increase beyond that, when we take into account the development of self-driving vehicles, electric cars, robotics, automation, artificial intelligence, smart cities, renewable energy. It can continue for decades, she says.
– This is not just about semiconductor failure, caused by everyone who works at home during the pandemic and such. The change in demand goes much deeper than that. The change is structural, says Sundström.
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