CHIP PRODUCTION – SCARE, SHORTAGE & NOW RECESSION!

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CHIP PRODUCTION – SCARE, SHORTAGE & NOW RECESSION!

The roller coaster of semiconductor doesn’t seem to be ending soon. The supply chain disruption is the plot, but they are any number of sub plots getting tied to it. From every sector of the economy getting hit to national security, the narrative seems to endlessly peeling off layer after layer. Then the scare, just in case there was another pandemic or any geopolitical situation, what would be the fate of the semi-conductor starved or the semi-fed nations. Nation states are trying their level best, at least the ones who can, from the US to Europe to India. There is the scare of shortage. The near monopoly of TSMC has always remained an area of serious concern.

TSMC not only produces nearly 90% of chips made using advanced technologies, but also has most of its production on the home island. The island has been the target of an increasingly belligerent China. A big fab facility was in the interest of US or might be they were not able to imagine a life without it. Without a fab to support the US economy, they were feeling jittery. TSMC in Pheonix is the best that could happen to the US. The $12bn fab under construction seems to have allayed US fears of life without the chip. Arizona capital’s history of semiconductor manufacturing helped it land a deal with the world’s largest chipmaker. Actually, the scenario that had got created was easily the biggest economic security crisis since the recession.

Demand surged as homebound workers upgraded their electronics. Public transport averse commuters ordered for new cars. Pentagon and Co. needed the chips for their hi-tech gadgetry. Thus, TSMC’s decision in May 2020 for building the Phoenix plant was possibly the most watched foreign investment in US for decades. Arizona scored on low costs, a talented workforce and a reliable supply chain. While some glimmer of light showed by way to improved chip supply chain and few nations went ahead on their way of creating fabs, the chip industry has once again taking the world by surprise. *And this time it is recession.

It seems the chip industry in plagued in some way or the other. Now the chipmakers see a ”breathtaking” drop in demand as the recession looms. From a super demand and shortage no end in sight, it seems, if the indicators are anything to go by, the demand seems to have gone in for a tailspin, might be in a just a quarter. Samsung has reported totally unflattering numbers. The world’s largest memory chipmaker reported a 32% dive in operating income. The PC processor chipmaker AMD said it will miss its earlier forecast by about $1 billion. After years of record capital spending, ”the chipmakers are warning on a weekly basis that the demands are sputtering.” Within hours of each other Samsung and Advanced Micro Devices Inc. reported disappointing results. Some companies have started making efforts to stall plummeting prices. The fall in AMD shares spurred losses in chip and PC makers from TSMC to Lenovo Group Ltd. on Friday.

THE CHIP SEEMS TO BE GETTING INTO A TAILSPIN.
Sanjay Sahay

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