Can Apple do anything to ease America’s chip shortages?

Apple reportedly pre-ordered 80% of TSCM’s initial output of 5nm chips and 100% of its 3nms. Is that a problem?

From Bloomberg’s “Carmakers Face $61 Billion Sales Hit From Pandemic Chip Shortage” posted last month:

When buyers came back, the auto industry didn’t have enough semiconductors. Chip foundries were busy supplying gadget makers.

From “Amid Shortfalls, Biden Signs Executive Order to Bolster Critical Supply Chains” in Thursday’s New York Times:

“Right now, semiconductor manufacturing is a dangerous weak spot in our economy and in our national security,” Mr. Schumer said. “Our auto industry is facing significant chip shortages. This is a technology the United States created; we ought to be leading the world in it. The same goes for building-out of 5G, the next generation telecommunications network. There is bipartisan interest on both these issues.”

Republicans emerged from the White House meeting optimistic that such efforts could soon move forward. Representative Michael McCaul, Republican of Texas, said he was pleased to see that the White House made the issue a top priority and that the president was receptive. “His words were, ‘Look, I’m all in,’” he said.

My take: Hmm. I could be all wet here. But if there’s a way for Tim Cook to get ahead of this bipartisan buzz, he should take it.

25 Comments

  1. David Emery said:
    Could Apple open a chip foundry (either directly, or by contracting with some company) in the US?

    But if Apple does this, they’d still expect to consume 100% of the output, right? So that would have no real net impact on US chip supplies as a whole.

    0
    February 25, 2021
    • Aaron Belich said:
      Isn’t TSM investing in a foundry in AZ!?

      0
      February 25, 2021
      • Bart Yee said:
        Yes.
        “TAIPEI (Taiwan News) — Taiwan Semiconductor Manufacturing Company (TSMC) purchased a large piece of land in north Phoenix for a planned semiconductor plant last Wednesday (Dec. 9) at a state land auction.

        TSMC’s US$89 million bid was the only one received by Arizona at an auction for a 1,129-acre tract of undeveloped land off Interstate 17, according to AZ Central. The auction made the location of the future facility public, which TSMC had previously kept quiet since May, when the project was first announced.

        TSMC has said it plans to spend US$12 billion on an advanced 5-nanometer fab, which is expected to begin construction in 2021, with chip production slated to start by 2024. The company has said the new factory will create 1,900 full-time jobs over a five-year period.

        Phoenix is still working with TSMC to finalize the development deal. TSMC has also said that it hopes U.S. federal subsidies will help cover the extra costs of manufacturing chips in America. Once the plant is completed, it is expected to use 12-inch wafers and have a production goal of 20,000 wafers per month.”

        https://www.taiwannews.com.tw/en/news/4078343#:~:text=TSMC%20announced%20in%20May%20it,5%2Dnanometer%20fab%20in%20Arizona&text=TAIPEI%20(Taiwan%20News)%20%E2%80%94%20Taiwan,at%20a%20state%20land%20auction.

        0
        February 25, 2021
        • Bart Yee said:
          TSMC is not going to make a material impact whatsoever for at least 3-4 years on what should be a mature 5nm fab process by the time it is up and running. Of course, they will likely design in 2 or 3nm capability and scalability plus woo Apple, Qualcomm, and NVidia as their primary customers, and any automakers who wish to help fund this US expansion.

          In the meantime, because current chip demand has so far outstripped vendor supply, would probably see some chip price inflation and additional competition for whatever supply is available, assuming off the shelf designs and parts. Lining up fab space and time for custom made parts could be problematic. It would take some time (months to a couple of years) for current chip suppliers to expand any chip production line to meet current short term future demand, if there is such an expansion. Like the Automakers, I suspect the chipmakers are loathe to expand supply without concrete evidence the demand is going to be there in 12-36 months. This may be a short term boom for the chipmakers while a drag on automaker production and revenue until both balance out.

          0
          February 25, 2021
  2. Tommo_UK said:
    Could Apple be partly responsible for the chip shortage, given its vast component needs for its supply chain from the foundries reporting a lack of capacity? TC is the logistics expert and at the first whiff of covid will have pre-booked capacity for several years ahead, impacting capacity to produce components for other manufacturers (whatever the industry – from automotive to handsets).

    1
    February 25, 2021
    • Gregg Thurman said:
      pre-booked capacity for several years ahead,

      The issue isn’t future supply, it is current supply. Demand spurs the expansion of production capacity. If Apple pre-paid for future supply, then its supplier has the funds to expand capacity, which it is doing now.

      The problem is US fabs have been unable to advance their production technology in step with manufacturers’ needs.

      5
      February 25, 2021
  3. Taiwan’s semiconductor manufacturers are already working with the Biden Administration on some arrangements to alleviate the shortage. United Microelectronics (UMC) and MediaTek (only trades on Taiwan SE) are coming together with TSM to see what steps they can take. This group is far more likely to achieve results than Intel or GlobalFoundaries. Samsung will also ‘chip in,’ no doubt.
    https://focustaiwan.tw/business/202102250012

    3
    February 25, 2021
  4. Gregg Thurman said:
    As a rule, I don’t like political solutions to business problems created by the businesses themselves. If we don’t have the production capacity in the US necessary to meet our needs, it is because those businesses abrogated production (and the following supply) to others (residing offshore).

    Now we are in a position wherein a critical business segment can’t produce its product. It’s going to take massive tax incentives to get a new fab online in the US. But then I don’t think business should be taxed in the first place.

    1
    February 25, 2021
    • Rodney Avilla said:
      I don’t believe money spent on R&D is taxed. But I think what companies like are tax credits for specifically needed R&D.

      0
      February 25, 2021
  5. NXP Semiconductors (NXPI), ON Semiconductor (ON) and STMicroelectronics are reputed to be the big three shops making semiconductors for the car industry at present.

    4
    February 25, 2021
    • Gregg Thurman said:
      If true then any article listing Apple as part of the problem is taking cheap shots at Apple, and not the problem: mention Apple and get increased eyeballs.

      5
      February 25, 2021
    • David Emery said:
      Due to the environmental concerns (temp extremes, vibration, salt water, etc), chips for cars are NOT the same as chips for cellphones or home computers.

      There’s an interesting discussion on the Texas power grid collapse. Apparently Texas power producers are paid for actual production, where most other grids pay for capacity (and then reimburse based on retail payments of consumption.) This provides them with spare capacity that the Texas system does not. The analog for chips (or any other critical material) is whether government should sent up incentives to pay for (excess/spare) capacity.

      0
      February 25, 2021
      • Gregg Thurman said:
        Power is a regulated industry. The rates it charges are set by local oversight committees of various names. Building out capacity to meet demand is a business decision that wasn’t made by the businesses currently involved. Chipmakers are not regulated, and I don’t think we want them to be.

        0
        February 25, 2021
        • David Emery said:
          Power industries are utilities, subject to substantial regulation by local, state and often (but not always) Federal control. I’m not sure we want to move chipmaking into utilities.

          It’s worth noting the reason Texas is on its own statewide grid, rather than a regional grid, is explicitly to avoid any Federal oversight.

          1
          February 25, 2021
  6. Jerry Doyle said:
    I would assume logically that Apple needs the chips it ordered or otherwise Apple would not have ordered the chips. Preparedness is defined as a very concrete research-based set of actions that are taken as precautionary measures in the face of potential disasters (such as being caught short of needed chips for turning out products). Preparedness also is a critical process taken to achieve targeted goals & for avoiding negative outcomes.

    Apple providing humanitarian relief is a worthy cause. Apple bailing other industries out of their own short-sighted failures to plan according, is an entirely different issue.

    Please know that Apple coming to the car industry’s rescue will do little to enhance the tech’s company’s image because the car industry is a cut-throat industry that has the same short-sighted appreciation of gratitude as it did in its failure to prepare for avoiding or mitigating its current chip shortage problem.

    2
    February 25, 2021
    • Bart Yee said:
      Agree. IMO, legacy auto manufacturers see their suppliers only as vendors who are essentially supplying mostly commodity parts. Auto companies in many cases jettisoned their own supply (Delco, Autolite, etc.) and let them fend for themselves. Automakers also have not invested in their vendors as partners while Apple has (TSMC, Corning, Foxconn, etc.) heavily. Automakers are loathe to stock any inventory having bought into Just-in-time delivery of parts as a way not to tie up capital. In their defense, not having much largesse or making much free cash flow is the motivation for the above. They may or may not develop any custom parts either. Short term thinking.

      Meanwhile Apple, having much higher electronics parts counts while producing far more widgets compared to automakers, and having much higher cash flow, develops and invests in partner relationships and the capacity to for future supply. Long term thinking.

      Apple invested in capacity upgrades for their parts. Let the Auto industry invest in dedicated production for their needs. Apple ponied up capital for current and future production, not Apple’s fault that Automakers did not, and not Apple’s responsibility to solve automaker or supplier capacity restraints. Of course, no one wants to overbuild production capacity either.

      1
      February 25, 2021
  7. Fred Stein said:
    Ugh politics. I’ve been banging on this “chips matter” pot for a while.

    Neither politicians nor top auto execs can think long term. Neither can explain (if they understood) long term issues to their constituents, voters or investors. When in crisis, they blame someone else.

    In contrast, Tim and Elon saw that incremental improvements in chips mfg and battery tech have a powerful ‘compounding effect’. See Albert Einstein’s quote on compounding.

    4
    February 25, 2021
    • David Emery said:
      Seems to me auto makers can think mid-term, maybe 5 years, because that’s about what it takes to move a car from concept to production. But theirs is both capital-intensive and labor-intensive, and it’s probably fair to say that the auto makers don’t have much success thinking beyond a 5 year window. But then, what industry does have demonstrated 10 year expertise?

      0
      February 25, 2021
  8. Brian Loftus said:
    Seems to me the Just In Time principle that US Auto makers took from the Japanese in the 80s has come back to bite them in the ass. Given the overall low cost, long lead times, and rarely changing designs – they should have designated this for stockpiling.

    3
    February 25, 2021
    • David Emery said:
      Well, if you’re not “just in time” then (by definition) you’re buying and storing stuff you don’t need right away. That stuff sits until you do need it. Keeping stuff in a warehouse has a cost.

      How much should auto makers add to the cost of a new car for parts inventories sitting in a warehouse? If the lines shut down once every 5 years for parts shortage, there’ll be a point when the downtime costs exceeds the carrying cost for the parts. I don’t know what that number is, but I know it’s more than ‘0 days’. (I studied inventory theory in college. There’s a “denial cost” that is part of the calculation, along with “carrying cost”, and a big part of inventory theory is balancing those two costs. See https://en.wikipedia.org/wiki/Inventory_theory )

      0
      February 25, 2021
  9. There’s a common thread running through every industry and impacting all production: reliable energy. Chip manufacturing in Taiwan uses 7% of the nation’s energy output. It’s comparable to aluminum production. Bitcoin mining uses as much power as Pakistan. Major parts of the US power grid (TX, CA) recently failed. Without infrastructure improvements the US will never attract more semiconductor production facilities.

    3
    February 25, 2021
    • Bart Yee said:
      While what you said is true, apparently Texas (Samsung, TI, Apple) and Arizona (TSMC, Intel) believes they have “enough” power to encourage more industrial and semiconductor company recruitment and investment. Whether Texas actually does have a reliable electrical grid in times of weather extremes will now be in question. Of course, a lot of industries (may be) could be forced to curtail energy usage preferentially during extreme demands to taxpaying consumers (or vice versa, depending on how the rules of engagement or disconnection or power throttling is written by lawmakers and “regulators”). Could Wisconsin have adequate supply for any new Foxconn facility? Yes, likely they would.

      In California, industries have come and left, can’t say whether there is a net increase or decrease in energy demand as of yet, but certainly after last year’s energy issues, California is likely to be / hopefully better prepared to deal with continuous hot weather energy demands, and to address/update on power sources which are in partial or complete shutdown (for maintenance or refurbishment, or closing) and cannot be relied on for additional power reserve generation. Certainly, consumer energy demand is a big issue during hot weather so more reliable power generation capacity and reserve is needed and needs to be coordinated properly.

      1
      February 25, 2021
  10. Peter Kropf said:
    About free and unregulated power systems.

    Texas’ unique experiment (Enron birthed) has resulted in disastrous failure. I read a report where Texas ordered Samsung’s fab to disconnect from the grid for a significant period. If true, that means Samsung risked a disastrous power interruption if the fab’s on-site backup power failed.

    The chip industry has been forewarned and may avoid Texas until they regulate for reliable power delivery.

    PS – It isn’t to be overlooked, but Enron sold a power philosophy where utilities delivered cheap power and weatherizing their facilities would just be an extra uncompensated cost. Net Net. Cheap power for decades, all to end in a huge dangerous disaster with accompanying huge government bailout. Profits – private. Bailout cost – public.

    1
    February 26, 2021
  11. Gary Morton said:
    I am not an expert in Chip manufacturing, but did lead a division in a manufacturing company for 12 years. My understanding of the current chip shortage is that it stems back to Q12020 when the pandemic hit and many major chip consumers (automotive, aerospace, appliances, etc.) dramatically cut their chip orders and forecasts. Chip manufacturers responded and reduced their component and machinery orders in kind. As the economic impact of the pandemic, the vaccine timing, the fiscal response of governments, etc. began to be better understood; it took a long time for the chip consumers to become confident enough to place orders and deliver longer term commitments. Those who moved first gobbled up the reduced supply and those who moved later (Ford, GM, Chrysler) were left in a shortage situation. It will take another year for this disruption to work its way through global supply chains. The US has an opportunity while this occurs to get a bigger piece of the manufacturing pie, but it will still be just a sliver. Meanwhile, the exceptional operational team at Apple just keeps chugging along.

    1
    February 26, 2021

Leave a Reply