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Chip supply relief coming in 2024 when wafer plants open

Another reason why this year and next will suck

Alerts issued this month are pointing to chip supply issues being possibly resolved only when new factories become operational in 2024.

Volkswagen this week said chip supply woes would continue until 2024, and the carmaker isn't alone.

Research firm Techcet this month warned demand for silicon wafers – the blank canvases on which chip dies are fabricated – will outstrip supply until the end of 2023, which will hold up the production of certain chips and/or cause prices of components to rise. In other words, there isn't just over-demand for finished microprocessors and other ICs, but for the very wafers themselves, driving up costs.

"As with other semiconductor materials, supply of silicon wafers is tight, and lead-times are increasing," Techcet said in its research note. We're told that right now, the monthly production of 300mm wafers can roughly match demand. However, that demand will grow, and wafer plants to match supply with demand won't begin production until 2024, Techcet explained.

"Prices will increase because of this tight supply-demand balance and because suppliers are asking for higher prices in contracts to pay for the new investments," Ralph Butler, a senior director for the firm, told The Register. "Also, in the near-term, energy and raw materials costs are rising and this contributes to upward pricing pressures on silicon wafers."

Relief should come when the necessary manufacturing sites are able to meet the growing demand for wafers.

"There has been strong demand for silicon wafers from 2020 onwards, and in that period very minimal investments by wafer suppliers in new plants to manufacture the wafers needed to fabricate semiconductor devices," Butler said. "Only in the past six months or so have wafer suppliers announced investment plans for new plants; though it will take two years or so for this production to come online to supply the semiconductor industry."

In the meantime, the prices of wafers are expected to go up, driven by shortages and the costs for energy, raw materials going up. That is good news for silicon wafer makers, who will rake in the cash. Techcet is projecting revenue from silicon wafers to be about $15.5bn this year, growing by 14.8 percent from 2021.

"This will be the first time in over a decade that the wafer market will see two consecutive years of double-digit growth," Techcet said.

Wafer suppliers are opting to invest in new greenfield plants with much larger capacities that will be operational starting in 2024, which should alleviate shortages. That's an alternative to upgrading existing facilities that would not provide enough output to meet the ongoing shortages.

"It will take time, 2-3 years, for plants to be constructed and equipped so production from new greenfield plants will not contribute to wafer output until 2024," Techcet said.

Industry consortium SEMI on Monday said that manufacturers worldwide boosting 200mm fab capacity to meet the chip shortage. The capacity will reach 6.9 million wafers per month in 2024, growing from from 1.2 million wafers at the end of 2020.

The capacity will be largely used to make low-cost chips that include analog, power management, and display driver ICs and MCUs.

“Wafer manufacturers will add 25 new 200-mm lines over the five-year period to help meet growing demand for applications such as 5G, automotive and Internet of Things devices," said Ajit Manocha, SEMI president and CEO.

Techcet earlier this year separately raised concerns of possible shortages of neon and palladium affecting chip fabrication as Russia invaded Ukraine. ®

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