Companies are looking for…

The global shortage of chips, semiconductors and circuits is approaching its second anniversary. During this time, producers had to use unusual tricks to conserve production capacity. Auto manufacturers use washer-derived semiconductors that convert their source code to consume less valuable silicon. In some cases, they were (forced) to deliver products without chips, while at the same time obligated to fix the problem at a later time. As shortages of semiconductors become common, companies are forced to adjust their purchasing and production strategies.

“There is desperation in the market,” says Bill Wiseman, senior partner at consulting firm McKinsey. “If you make a $350,000 mass spectrometer and you can’t connect it because you don’t have a 50-cent chip, you’re willing to pay almost any price.”

McKinsey is one company that has taken the current situation to its advantage. They have created a team dedicated to sourcing chips for companies that provide them with consulting services. This team thinks outside the box and looks for chips outside of existing supply chains. Much needed chips are found in countries such as Morocco, Holland, Japan and others. They also identified segments that are slightly different from those originally requested but nonetheless suitable for subscribers’ needs. In the current situation, all the reins are in the hands of chip manufacturers and middlemen, who can charge a premium for the currently most in-demand raw materials in the world. However, companies have no choice but to pay. “The potato chips are already out there somewhere. The only question is how to find and get them,” Wiseman says.

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In some cases, this means using more unusual grab and hold tricks. Peter Weiningk, CEO of Dutch company ASML, which makes advanced machines for making modern computer chips, has revealed another interesting example of an industrial conglomerate that has resorted to buying washing machines just to obtain valuable chips for its products. .

Let’s remember why there is ever a shortage of raw materials: an epidemic, the rush to buy electronics needed for work and school from home, a backlog of chips due to US-China trade tensions, and disruptions in the flow of components through the complex semiconductor supply chain. all over the world.

The two-year crisis has highlighted the critical importance of semiconductors to the economy and society, while also demonstrating the fragility of existing supply chains. The industries most affected are consumer electronics (graphic cards, keyboards…), LED lamps and other lighting, energy and the automotive industry (fossil and electric). At the start of the pandemic, automakers halted or reduced production capacity, canceled orders for existing chips, and then were surprised by a sudden surge in demand. Car companies have fallen at the bottom of the list of priority customers and have been catching up since the start of the pandemic.

Some car manufacturers have had to suspend production lines at some factories around the world. Others proceeded to remove (smart) functions from the vehicles, thus preventing production from being halted. In September last year, Cadillac announced that it would temporarily remove the hands-free feature from some vehicles. Tesla started selling cars without USB ports in November. However, Ford said in May it would ship chip-free vehicles from its factories for non-critical features like heating control, and dealers would add them later.

Many companies are rewriting their code so that it works with different chips or in a way that a single chip doubles the work, says Mike Juran, CEO of Altia, a company that makes software for building interfaces for cars and electronic devices. According to him, the companies were forced to use 10-year-old chips. “They use the chips that are available at the moment. We encourage them to use older chips that are in storage that haven’t been rated as high quality in the past, but we can still get the same GUI on them.”

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Chip shortages have persisted for two years, also due to new events that have once again stirred up threads in supply chains, such as the resurgence of the coronavirus in China and the Russo-Ukrainian war.

Ukraine, for example, produces more than 90% of the high-quality neon used to make chips at the largest semiconductor factories. Neon prices have jumped in the past, in 2014 during the conflict with Russia and then Ukraine. Russia is also an important supplier of the main raw materials. Almost a third of the mineral palladium comes from Russia. Used in sensors and memory products. Russia is also a significant source of C4F6 (hexafluorocyclobutene) that US companies purchase for purification for advanced node etching and for advanced lithography processes in wafer production.

However, the global crisis is also creating new opportunities for those who made some smart decisions at the right time. Smith & Associates, an electronic components broker, has expanded its current workforce (500 employees) with an additional 300 specialists since the pandemic began. “Wages have risen to the highest levels in the company’s history,” said Mike Hatzel, the company’s managing director. He adds that some companies have canceled their orders, and most are doing their best to maintain production lines.

The startup Chiplitics, which uses technology licensed from Sandia National Laboratories, has developed a more efficient way to quickly detect counterfeit chips. The process involves sending a signal through chips. Detecting counterfeit products is critical for brokers and manufacturers who want to outpace the competition.

Dan Hutcheson, an analyst at TechInsights, which monitors the chip industry, says companies have taken some steps to address the shortage because they had no other choice. It also warns that shortages could quickly escalate to oversaturation as the economy returns to its old tracks and demand for new products slows. It also questions whether some companies are responsible for the current shortage. “Some have to stock up on chips. I think chips are the new toilet paper.”

Something similar was announced last year by the largest chip maker, TSMC, which also suspected that some companies were not using chip stocks at all.