Column Unless you've been hiding under a (non-silicate) rock, you know there's a massive global shortage of semiconductors. Automobile production lines have stalled. New computers are launched late. Gamers can't get their hands on the latest bits of kit. And we're told that this won't clear up until 2023. If we're lucky.
For a resource so fundamental to the connected economy, it seems quite amiss that suddenly semiconductors have fallen into such tight supply. The proximate causes, we're told, include: orders cancelled in the pandemic panic; a drought in Taiwan; a blizzard in Texas; a fire at a fabrication facility; and the unexpected uptick in orders of PCs – again, another outcome of the pandemic.
All of these have some impact on supply chains, to be sure, but none of these – even when combined – add up to more than a bit of temporary tightening around the edges. As this shortage will not be temporary, it's looking increasingly as though all of those "causes" merely hastened an inevitability.
Someone's forgotten to do their sums.
Planning has always troubled the semiconductor industry. From its very earliest days, "wildcat" manufacturers of transistors sucked profits away from the bottom line of the majors with a here-today-gone-tomorrow approach to business. The same thing happened – more than once – with DRAM. The whole history of the industry is littered with firms that either failed to plan – or planned to fail.
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The majors managed their planning well – or well enough to avoid disaster. That's bred them to be somewhat risk averse, conservative in their planning, and parsimonious with their investments. While that approach makes sense in mature markets, one lesson we can glean from the history of computing is that it's all change, all the time. Yesterday's must-have PCs are tomorrow's already-cast-aside smartphones. Forms change, processes change, needs change: if we haven't learned that over the past 50 years, we haven't learned anything at all.
Analysts and shareholders and boards drove a conservative streak deep into businesses that should have spent their time and resources continuously flirting with the edge of disaster. It's that conservatism that's led us to this crisis – well-intentioned, but entirely wrong for the business these companies are actually in: disruptive innovation.
The proofs of this are visible within the remedy: in May we saw well over half a trillion dollars of capital committed to semiconductor fabrication, with $450bn from the South Koreans, around $130bn in President Biden's massive infrastructure spend, and another $100bn from TSMC – the current Master of the Chipmaking Universe. That kind of sudden and overwhelming commitment of capital to anything is completely unprecedented in the history of business. It brings into high relief the central failure here: a long-term aversion to invest in capacity.
Someone's forgotten to do their sums.
For at least a generation, companies have chosen to pass their profits back to their shareholders, rather than investing them productively. Such a strategy, pursued over the long term, inevitably hollows out a business. In the fast-moving semiconductor sector, that vacuum forms at considerable speed and terrifying acceleration. So now, governments in South Korea, the United States, and Taiwan are doing their best to stuff that hole with every dollar they can find.
The best time to plant a tree, it's said, is 20 years ago. The best time to build a next-generation semiconductor foundry is five years ago. Last week, TSMC broke ground on its current-generation fabrication facility in Arizona. It's a start – but won't produce any chips until at least 2024. In the semiconductor industry, even all the money in the world can't instantly transform into productivity. These things take time – and decisions that should have been made years ago.
We can hope that the semiconductor majors have learned their lesson, and now understand that their futures rely on being willing to take a long walk on the wild side. ®