SEOUL – Even the world’s biggest supplier of memory chips may be suffering the fallout from an ongoing global shortage of semiconductors.
On Wednesday, South Korea’s Samsung Electronics revealed at its annual general meeting that it may not roll out a previously planned flagship new phablet later this year due to chip shortages.
Wednesday’s meeting took place amid an unprecedented semiconductor drought that has hit the global auto industry and is now impacting consumer electronics. Companies in those sectors face potential multi-billion-dollar losses due to their inability to fulfill consumer demand.
All eyes are on the high-level meeting between Chinese and US semiconductor players in Alaska this week, a pow-wow many hope will provide new clarity on the Biden administration’s trade and technology policies towards China.
One industry expert told Asia Times he does not see the semiconductor sector significantly increasing capacity for another nine months. Still, while chipmakers may now be in crisis mode as they struggle to meet orders, the longer-term prospects for an industry now seeing a surge in demand look more upbeat.
Samsung co-CEO Koh Song-jin told Wednesday’s AGM meeting that the “serious imbalance in supply and demand of chips” impacting the entire industry could impact the company in the second quarter.
Samsung is unusual in the industry in that it is a nose-to-tail electronics firm. The South Korean giant not only develops and manufactures key B2B components for itself and clients around the world, it also produces its own family of B2C electronic devices.
The company’s two core arms are semiconductors and mobile devices. The delay in rolling out an updated phablet is of minimal consequence compared with the mightier problem facing the global supply chain of the ongoing semi-conductor shortage.
“Skipping the Galaxy Note is not surprising at all. It had been well anticipated,” said Daniel Kim, head of research at Macquarie Bank in Seoul. “The [chip] supply-demand issue is the hottest topic right now.”
Samsung’s Koh said he did not foresee any near-term improvement in that supply-demand imbalance in the chip industry.
“It is hard to say the shortage issue has been solved 100%,” Koh said during the company’s AGM, held in Suwon, a dormitory town south of Seoul noted for its many electronics facilities.
Chip industry’s perfect storm
Samsung is not the only chipmaker struggling to meet demand. The leading supplier of non-memory chips, Taiwan-based TSMC, and Samsung’s cross-town rival, SK hynix, the global number two-player in memory chips, are facing similar issues.
The imbalance now shaking the industry is to a large extent driven by 2020’s unprecedented pandemic.
On the one hand, the work-from-home and recreate-at-home trend generated by Covid-19 massively elevated demand for data centers and personal appliances. All required various types of semiconductors, making the chip industry one of the big winners of the pandemic.
A second issue behind the lack of global supply is a forecast error by global automakers.
Expecting demand to fall due to the pandemic, carmakers slashed their pre-orders for semiconductors. With cars increasingly electronic rather than simply mechanical, chips are used in control, driver information, on-board entertainment, emissions and vehicle safety systems.
But at the end of 2020, the industry sought to ramp up production as the world spied an exit from Covid and sought more use of public rather than private transport.
The problem is that absent carmakers’ orders, chipmakers had last year pivoted production away from chips for cars to chips for electronics.
According to press reports, the global auto industry may see a loss of US$60.6 billion in revenue this year. Major carmarkers including Ford, Honda, GM Nissan and even Tesla are being impacted.
But the problem does not stop with cars.
Another element was a totally out-of-the-blue disaster. A key element in Samsung’s global value chain is its facility in Austin, Texas. The facility suffered power outages during the recent Texan power cuts, and in their aftermath has still not returned to full capacity.
“The outage deepened the seriousness of the situation – it is now far, far more serious – as the Austin fab accounted for 60% of Qualcomm’s radio frequency chips,” said Macquarie’s Kim. “RF chips are a key component of smartphones, so every smartphone supplier will suffer.”
Samsung expects the facility’s operations to be normalized the by the end of this month, Kim added.
A good problem to have?
Even so, the resumption of operations in Austin will not fulfill the overall shortfall facing the sector. For chipmakers, the demand surge looks like a good long-term problem to have.
The question is how and when the industry can make up the current shortfall with new capacity, something TSMC and US-based United Microelectronics have vowed to do.
“It will take time even if [chipmakers] decide to invest, add the capex and ramp-up speed,” a Seoul-based industry expert told Asia Times.
He anticipated it would take approximately nine months to significantly upgrade semiconductor production capacity. But he also warned that companies may be reluctant to invest massively due to the nature of the chip industry, which is historically cyclical with big peaks and troughs.
Even so, Samsung’s AGM cast further light on its long-term plans in the sector, where it is not only dominant in memory chips but is increasingly a player in the upmarket non-memory sector.
In memory, the South Korean firm will concentrate on developing fourth-generation 10-nanometer (nm) level DRAM and the seven-generation V-NAND chipsets, according to Kim Ki-nam, who heads Samsung’s Device Solutions division.
In the high-value logic chip sector, where Samsung is the global number two behind industry leader TSMC, Kim said Samsung plans to mass-produce third-generation 5nm products, and will further advance its 3nm node process technology.
In the chip sector, a broad benchmark is the smaller the chip, the more advanced. Both Samsung and TSMC are working on the production of 3nm chips. The smallest chipset produced in the US at present is a relatively clunky 7nm.
While the US leads the world in much of the intellectual property in the semiconductor sector, it lags far behind Asia when it comes to manufacturing. President Biden has ordered a policy review into global supply chains.