Analyst house Forrester has offered a bleak warning about the time it will take to address the global shortage of silicon chips.
In a blog post, Forrester VP & Research Director Glenn O’Donnell offered his insight into the semiconductor market, and warned that the chip backlog “is still taking time to flush through.”
And the short-term outlook is not looking good, with Forrester’s O’Donnell warning that “because demand will remain high and supply will remain constrained, we expect this shortage to last through 2022 and into 2023.”
Forrester’s O’Donnell began by noting how consolidation and acquisitions has changed the semiconductor landscape in the past few years.
The chip shortage is down to the classic supply and demand imbalance, noted O’Donnell.
“We have surging demand and limited supply,” he wrote. “ Demand for cloud computing services from providers like AWS, Microsoft Azure, and Alibaba continues to skyrocket. They buy lots of semiconductors. Mobile phone sales remain hot. Makers like Apple, Samsung, and Huawei buy lots of chips. PCs are hot. They buy lots, too! Piled atop all that is a shortage of GPUs and other chips gobbled up by cryptocurrency gluttons. Demand is hotter than ever, and it’s only getting hotter.”
He pointed out that the Coronavirus pandemic has played a role in this demand surge, as PC sales surged due to the working from home move. This has meant demand for a decent PC, coupled with apps such as Teams, Zoom, and other collaboration platforms running in the cloud, has also added to demand.
Even everyday items such as Ring doorbells or even smart toilets require computer chips.
And because of all this demand, Forrester’s O’Donnell warned that shortages are going to continue for the time being.
“Given the voracious demand for technology, semiconductor demand will continue to grow,” he wrote. “While the human race will need more chips, the manufacturing capacity cannot respond to keep up.
“Then the answer is to increase supply, right?,” he asked. “Yes, but building a semiconductor manufacturing facility (aka, a “fab”) requires billions in capital investment and two years or more to construct. It won’t be fast or easy, but capacity is coming. Intel recently said it will spend $20 billion to build two new fabs in Arizona, while Taiwan’s TSMC plans to spend $28B. US President Biden recently met with a large group of tech leaders, including semiconductor CEOs, to discuss the need to build more fab capacity.”
Forrester’s O’Donnell also pointed out that matters have not been helped by the geopolitical tensions between China and the US in recent years.
“The US and China have been entangled in an escalating trade war, with technology in the bull’s eye,” he wrote. “Anticipating sanctions, Chinese tech companies hoarded chips and chip-making equipment that might not be available in the future. That stockpiling drained the supply. If sanctions tighten, US exports to China will drop further, spawning even more domestic expansion in China.”
He explained that while Chinese firms such as Huawei already make chips, it will be at least two years before a sufficient Chinese supply is a reality.
“Furthermore, industry consolidation left only a handful of companies that run chip fabs,” wrote Forrester’s O’Donnell. “Many chip companies have gone “fabless,” where they design chips but outsource the fab to someone like Samsung or TSMC.”
And he noted that surging demand seems to have caught the chip fabs by surprise. He pointed out that capacity has been increasing but not nearly fast enough to keep up.
“The pandemic temporarily shut down chip fab capacity,” he wrote. “This caused a backup similar to the impact of the Ever Given fiasco on the Suez Canal. That chip backlog is still taking time to flush through.”
“Because demand will remain high and supply will remain constrained, we expect this shortage to last through 2022 and into 2023,” he wrote. “The PC surge will soften a bit in the coming year but not a lot.”
“Datacentre spending will resume after a dismal 2020, and edge computing will be the new “gold rush” in technology,” he added. “Couple that with the unstoppable desire to instrument everything, along with continued growth in cloud computing and cryptocurrency mining, and we see nothing but boom times ahead for chip demand.”
Forrester’s O’Donnell offer this advice for anyone encountering purchasing problems associated with chip shortages:
“Finally, prepare for vendors to use chip supply as an excuse to hide other problems,” warned Forrester’s O’Donnell. “In many cases, it is completely valid, but when the chips are down (pun intended) in any scenario, people will often use the troubled times as a convenient scapegoat. Do your homework to understand the realities here and keep your providers honest.”
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