Saturday, June 25, 2022
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How has a $1 component sparked a $450 Billion Industry to go into crisis?

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A helpful detail to understand why the $450 billion semiconductor industry has lurched into crisis is knowing about a one-dollar part called a display driver.

Hundreds of different kinds of chips that run powerful computers or smartphones ranging from $100 a piece to more than $1,000 make up the global silicon industry. A display driver is mundane by contrast: according to LiveMint, the display drivers’ “sole purpose is to convey basic instructions for illuminating the screen on your phone, monitor or navigation system.”

The trouble for the chip industry is that there aren’t enough display drivers to go around as firms that make them can’t keep up with the demand so prices are increasing. That’s contributing to increasing costs and short supplies for liquid crystal display panels, essential components for making laptops and televisions, among other display-oriented devices.


“It’s not like you can just make do. If you have everything else, but you don’t have a display driver, then you can’t build your product,” says Stacy Rasgon, who covers the semiconductor industry for Sanford C. Bernstein.

Now the crunch in a handful of such seemingly insignificant parts is cascading through the global economy. Power management chips are also in short supply. Automakers like Volkswagen AG, Nissan Motor Co., and Ford Motor Co., have already scaled back production, which will end up in $60 billion lost revenue for the industry this year.

Before this gets any better, it’s likely to get worse. The Texas winter storm knocked out swaths of U.S. production. A fire at a key Japan factory will shut the facility for a month. Samsung Electronics Co. warned of a “serious imbalance” in the industry, while Taiwan Semiconductor Manufacturing Co.’s (TSMC) 100% capacity is not enough to fulfill demand.

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“I have never seen anything like this in the past 20 years since our company’s founding,” said Jordan Wu, co-founder, and chief executive officer of Himax Technologies Co., a leading supplier of display drivers. “Every application is short of chips.”

Image: Bloomberg

An ordering miscalculation as the coronavirus pandemic hit last year led to the chip crunch as many companies anticipated people would cut back on their spending as times got tough.

“I slashed all my projections. I was using the financial crisis as the model,” says Rasgon. “But demand was just really resilient.”

In a shocking turn of events for companies, people stuck at home started buying technology and then kept buying. They purchased better computers, 4K televisions, game consoles, milk frothers, air fryers, and immersion blenders. The pandemic turned into an extended “Black Friday onlinepalooza.”

Automakers were blindsided as they shut factories and told suppliers to stop shipping components, including the chips that are increasingly essential for cars. Then, later in 2020, demand began to pick up. People didn’t want to use public transportation. Automakers reopened factories and went hat in hand to chipmakers like TSMC and Samsung, who were so overwhelmed that they couldn’t make chips fast enough for their still-loyal customers.

Himax's TV driver ICs.
Himax’s TV driver ICs.
Source: Himax Technologies

Himax’s co-founder, 61-year-old, Jordan Wu is in the middle of the tech industry’s tempest. On a recent March morning, he agreed to talk to Bloomberg News in person with two of his staff joining there and another two dialing in by phone. He wore a mask throughout the interview, speaking carefully and articulately.

Himax started out by making driver ICs (for integrated circuits), as they’re known in the industry, for monitors and notebook computers. In 2006, they went public and grew with the computer industry, expanding into touch screens of all kinds. Their chips are now used in scores of products.

Wu explained pushing his workforce harder will not help make more display drivers. Himax designs display drivers and then has them manufactured at a foundry like TSMC. His chips are made on equipment that is at least a couple of generations behind the cutting-edge processes, artfully called “mature node” technology. “These machines etch lines in silicon at a width of 16 nanometers or more, compared with 5 nanometers for high-end chips.​”

The chip's makers have seen their shares soar with strong demand

​The bottleneck creator is the mature chip-making lines that are running flat out. Wu says the pandemic drove such strong demand that manufacturing partners cannot fulfill it. Coupled with the increase in usage of displays in devices such as refrigerators is causing an ever more shortfall.

LiveMint notes, “there’s been a particular squeeze in driver ICs for automotive systems because they’re usually made on 8-inch silicon wafers, rather than more advanced 12-inch wafers. Sumco Corp., one of the leading wafer manufacturers, reported production capacity for 8-inch equipment lines was about 5,000 wafers a month in 2020 — less than it was in 2017.”

More mature-node manufacturing lines are not being built because it doesn’t make economic sense. The existing lines are fully depreciated and fine-tuned for almost perfect yields, meaning, for less than a dollar, basic display drivers can be made. Buying new equipment and starting off at lower yields makes no sense.

“Building new capacity is too expensive,” Wu says. 

That shortfall is showing up, a 50-inch LCD panel for televisions doubled in price between January 2020 and March 2021. Bloomberg Intelligence’s Matthew Kanterman says there is “a dire shortage” of display driver chips and projects that LCD prices will keep rising at least until the third quarter.

Making the situation worse is a lack of glass. Major glassmakers have reported accidents at their production sites that are leading to a shortfall. A blackout at Japan’s Nippon Electric Glass Co.’s factory in December and “an explosion at AGC Fine Techno Korea’s factory in January.” 

All of this has seen Himax’s sales surging and its stock price tripling since November.

But the CEO isn’t celebrating and doesn’t expect the crunch, especially for automotive components, to end any time soon.

“We have not reached a position where we can see the light at the end of tunnel yet,” Wu said.


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