GPU prices are pushed up, PS5 is out of stock, Tesla’s revenue is reduced: Inevitable crises due to the nature of the silicon industry

For more than a decade, the chip industry has consistently transitioned to a new paradigm. When Covid-19 created an electronics craze, the most obvious inadequacy of that model was quickly revealed.

When the GPU craze occurred, the first “criminal” that gamers thought of was definitely the miners: the sudden increase in Bitcoin price made the mining fever come back. But in a better scenario, NVIDIA and AMD would have increased production to produce enough cards for both gamers and miners.

Not to mention, around the world, the supply of Xbox Series S / X and PlayStation 5 is also seriously lacking. Even car manufacturers from Tesla to Ford to GM have complained of reduced sales due to a lack of chips. So, what’s going on? Why is the world suddenly falling into the current situation of chip shortage?

“Joy” is named… Covid-19

Surely, the first answer that will come to mind is “Covid”. However, what you may not have realized is that after factories were allowed to operate again, Covid-19 became… a joy for hi-tech manufacturers.

In fact, Covid-19 has brought a brilliantly successful year for technology corporations

The reason is because as many countries have to implement social distancing, the demand for communication, entertainment and working from home also increases. This demand has grown to such an extent that the PC industry, after years of recession, suddenly returned to a record growth of 4.8%, the highest in a decade (Gartner data). Another hardware segment that also turned to growth after years of recession is tablets. Once considered a ‘fait,’ tablet last year set an increase of up to 13.6% (IDC figures), a number no one dared to think of in the pre-Covid era.

Even smartphones, the device segment hardest hit by Covid, only saw a decline of 6% (IDC). When most consumers are “tied” at home leading to a decline in mobile demand, the 6% figure is not bad considering that smartphones have been saturated from previous years: the decrease in 2019 was 1%. .

In short, the demand for electronic devices has increased sharply in the past year because of Covid. And, the surprising truth is that, even if you just bought a smartphone or a tablet, you could have contributed to the current GPU crisis.

An industry divided into two halves

Maybe you don’t know: NVIDIA-branded GPUs are not made by NVIDIA

Due to the high capital requirements and potential risks involved in the chip production cycle, much of the silicon industry has split in half. Half of these focus on design and semi-finished products, including familiar names such as AMD, NVIDIA, Qualcomm, Apple (self-designed A chip for iPhone, iPad and M chip for Mac). The other party owns chip factories, including TSMC, Samsung, UMC, SMIC and Global Foundries (which is the main manufacturing division of AMD that was spun off independently in 2009).

The situation of “split in half” makes electronic devices become reluctant competition for each other’s supply. For example, Apple hires TSMC to produce the A13 chip for the iPhone 11 on the 7nm process. But TSMC’s 7nm process is also used to produce a variety of Ryzen CPUs, Radeon GPUs, chips for PlayStation 5 and Xbox Series X/S (which AMD designed on the Zen 2 architecture), as well as many mobile chips. other. Assuming TSMC gives priority to Apple (iPhone 11 is the best-selling smartphone model in 2020), the Taiwanese company’s ability to produce CPU, GPU or APU will obviously decrease.

A cycle, a factory can be “scrambled” by many customers

Across the entire market, Intel and Samsung are among the few names that both design and manufacture. However, Intel is also considering outsourcing options and Samsung only uses a very small part of the capacity for its self-designed chips. The inevitable trend of the entire chip industry is to use certain manufacturers, and higher demand for chips – regardless of chip type – can contribute to a crisis. panic like now?

Why not growth?

The question is, why don’t chip processing companies increase output to meet the explosive demand during the recent epidemic? The answer: they want to, but can’t. Only TSMC and Samsung have the capital, manpower and experience to go together to the final chapters of Moore’s law: in 2018, both GlobalFoundries and UMC announced that they would not develop the 7nm process. Chinese giant SMIC is also currently embarking on trial production on the 7nm process, a journey that is likely to end in failure after the company was placed on a US trade blacklist.

As a result, the chip processing market is now in the hands of TSMC and Samsung. According to TrendForce data released last year, the Taiwanese giant holds up to 50% of the market share while the Koreans account for 17.4%, far ahead of all other competitors. In the hypothetical scenario that other companies are able to catch up with TSMC and Samsung, they will also have to spend billions of dollars and it will also take a long time to reach 7nm, the milestone that TSMC has already touched. hand from 3 years ago.

For NVIDIA, the decision to choose Samsung to avoid “TSMC fever” is just…avoiding melon skins meeting coconut shells

As a result, manufacturers were forced to depend on TSMC and Samsung, and when the consumption fever caused by Covid broke out, both themselves and consumers were victims. The most obvious example is NVIDIA’s irony: according to the original plan, NVIDIA designed the RTX 30 models on Samsung’s somewhat outdated 8nm process to avoid having to compete for TSMC’s 7nm supply with other manufacturers. other. However, the information that appeared in December said that Samsung’s 8nm output was also having problems… As a result, despite not having to compete with Apple or Microsoft for factories, NVIDIA was still short of GPUs to sell in the end.

More and more needy

Increasingly, the chip supply war is no longer the sole responsibility of hi-tech manufacturers. In the 4.0 revolution, items that previously did not use chips now need chips inside. For example, the computer system in Tesla cars is now so advanced that it can even play Cyberpunk 2077!

The other competitors are obviously not too far behind. The chips are so important that GM and Ford have had to cut production, recording $4.5 billion in losses during the current crisis. Cars have become a huge source of chip consumption.

The nature of the chip industry will continue to push the world into future crises

Refrigerator, washing machine, rice cooker, doorbell, TV… as well. Increasingly, the demand for chips will increase, but the supply is severely limited. Each newly built factory will require billions of dollars of initial capital, not to mention the time to build the chip factory is also calculated in years… Video cards, smartphones, cars, doorbells… will have to constantly compete for one another. limited supply, and sooner or later, the world will see more severe chip crises like today.