the kovit 19 pandemic has stressed the semiconductor supply chain
and manufacturers are feeling the pinch mario morales the program vice president for enabling
technologies and semiconductors at idc is going to join me today to discuss how the semiconductor
shortage or the chip shortage is affecting consumers and the tech industry stick around
hey everybody welcome back to today in tech i'm julia boshimp and i'm here with mario
morales as i mentioned mario thank you so much for calling in and joining me today
thank you very much for having me on your program so the first question and you can keep it pretty
brief how exactly did we get here how why how and why is the semiconductor supply chain in such
dire straits i think you really have to go back to last year and i think we started really with the
shock of the pandemic itself and that really shut the world down for at least a quarter
and during that same period of time areas like the industrial sector or the automotive sector
completely shut down and it forced suppliers to look elsewhere to continue to drive their
own supply it's interesting that the chip shortage
is has affected the supply chain in such a way that is a kind of two-fold in that it was an issue
because of a lot of people buying devices you know let's say last march april may june and also just
by nature of the fact that because there was a pandemic a lot of production had to cease
well as a combination of things i think in in general the the demand itself was very uneven
so at the beginning of of the pandemic we saw a very strong demand for cloud infrastructure
then we saw strong demand for broadband equipment then you saw pcs because everyone was moving to
remote work or learning right so that drove a dramatic impact to the supply chain but
it's not all about just the demand side of things i think what you need to also focus
on is is the fact that the industry as a whole was going through this period where
it had to develop its continuity planning and in some cases some companies just perform
better than others if you look at areas like the automotive industry this industry has
especially in europe and in the us they work in a more just-in-time kind of environment and that
usually works very well when in normal conditions but when you have a shock like we did last year
it just completely disrupted their supply chain so that's why some some of the worst cases are
actually in areas like automotive or industrial sectors which have very long product life cycles
but have a very complex and actually inefficient supply chain and so it's taking some time much
longer than it would would in the it world uh to recover i'm curious i feel like this is something
that we've has been in the news in the last few months certainly is this a new problem is
are all of the issues from last year catching up to us now and if that's the case why now
i think in general it takes about a year for the supply chain to actually adjust and i think you
know if you know everyone really forgot about the fact that in 2019 the semiconductor industry as a
whole was going through a very large correction so for 2019 there was a lot of inventory across
the board and demand was pretty uneven during that period of time so the actual semiconductor
industry declined by about 11 um as we got into 2020 we were expecting to see a gradual
recovery for the semiconductor space but then you got hit by the shock of the pandemic and so
that sort of just unraveled a lot of constraints that were already building up from from the supply
chain overall and that's where we're at today i think in general this industry goes through cycles
and either they're demand driven cycles or supply driven cycles but one of the things that we're now
uncovering with all of this is that there's been a lot of under investment in some areas especially
for mature technologies in the semiconductor space that are vital to areas like monitors and
power management for a lot of these devices analog technologies many of these different technologies
actually use very mature process technologies and in those areas there hasn't been a lot of
it hasn't been a lot of strong investment you you hear about tsmc and intel and samsung investing
billions of dollars into the space but a lot of it is towards the leading edge i would say
more than 80 percent of the investment goes to leading edge technologies and and a lot of the
mature technologies are relegated with existing capacity and so when you get a tight environment
that's what you sort of see is is that the tightness is really across the mature technologies
and not as severe as the the leading edge areas where there's a lot more uh capital to be invested
i know that there's a bit of a counterfeit concern now what threat do counterfeits pose to um both
you know the tech industry and um any sort of b2b enterprise but and is there also a threat for
consumers i wouldn't say the consumers will probably notice as much i think that the
threat is more to enterprises that are using a lot of this technology and not being able to identify
it so if you're committing to a specific spec or you want specific uh performance capabilities
but you're getting a a part that doesn't meet those specs then you start seeing degradation
of a system or a device and i think that's where you see the impact but you know counterfeit ics
are not anything new i think it's happened over the years just like you know you see counterfeit
software and pirated software as well i think it's just some something that's just a cost of doing
business in this area and and some of these parts definitely are re-engineered parts but they just
don't meet the specs that are intended to to that they were intended to meet and so that's what why
you see some of this during periods of tightness like that people are definitely trying to take
advantage of the tight situation so what kind of constraints are facing any basically any company
company that relies on a semiconductor to produce their hardware product and
how is that how is that constraint going to affect buyers is it going to drive up prices is there's
going is there going to be less availability and is that happening now is that going to happen next
month is it going to happen next quarter yeah i think that in general you'll see an increasing
in prices at least for the remainder of this year so raw materials are increasing in price
so so areas like substrates that are required for packaging or to sort of put on top of a chip as
you as you designed the package around it these substrates again these are industries that have
been under investing in the last couple of years and now that you see this influx of all this
demand they just can't meet that supply so the costs are going to go up for a lot of suppliers
and so you'll you've seen that in the last couple of quarters we've seen increases in wafer prices
increases in substrates and and it's just the lead times themselves are being pushed
out because you just can't get these parts you can't get the material to build the things that
you want to build so when you look at it from a consumer standpoint um the consumers probably
will not see the the pinch of this this this shortage as much other than not being able to
get enough of the of the products that they want to buy sure so if they want the latest and greater
they'll take some time for them to get it but they probably will not see an increase at this point
because it's still a very volatile economy not just in the us but you look around the world
we're just beginning to recover so if you start seeing this dramatic inflation
in electronic devices and systems it could have an immediate impact on demand i mean we're seeing
that inflation be an important part in in areas like energy today if you go to the grocery store
now you're paying probably 15 to 30 percent more for the the goods that you're buying and i think
you can't see that for electronic devices because if you do they're just not going to buy as much
and so i think that suppliers are going to be very careful how they manage to do this and i
think it's just going to take a little bit longer in time and in some industries like automotive
will probably take even longer because they've moved to the back of the line you know when
you look at automotive it gets so much press in terms of you know the impact of the shortages but
the reality is that the automotive industry only drives about 8.2 percent of the total
semiconductor market sure there are larger markets that will get priority and and suppliers are also
a little bit upset from the fact that during the period of shutdown many of these oem vendors
actually pushed out or completely cancelled orders from these suppliers and so the suppliers were
fortunate enough that demand was was vibrant across the board so they were able to move
their capacities these other product lines but but now the automotive industry sort of at the
back of the line and in general you'll see some easing effect by the end of this third quarter
but the automotive market will probably take into 2022 before you see it recovery because it's still
inefficient and and you still have to see the products move upstream into the industry great
so i think just sort of speaking more broadly as we wrap up here i guess my main question is
how do we or how does the semiconductor industry or how does the tech industry
the automotive industry smartphone pc what have you prevent this from happening again was this
really just a one-off because it because of you know kovan 19 really presenting a perfect storm
or is this something that if there is some sort of um you know either natural disaster
hurricane tsunami what have you or another pandemic is that is this mostly something that
is only going to happen in times of disaster or is this something that could happen again
if so how should both the semiconductor industry and also anyone who's buying
from the from the semiconductor industry plan ahead or prevent that i think that
it will happen again i think that there's so many inter interdependencies across the supply chain
now not only are you seeing large companies invest very large dollars into these industries
but they usually get the timing wrong sometimes when the capacity comes online it's during a
period where the demand side of the equation is contracting and so a lot of that really
means better continuity planning across the board from vendors to suppliers to the companies that
are are delivering these products directly to the customer understanding the shifts that we've
seen even last year with the pandemic the shift in buying behavior of consumers and figuring out what
is essential to them and what isn't i think that's going to be important to be able to forecast
more accurately what demand really looks like and being able to then meet that that forecast with
supply but i think a lot of this really comes down to collaboration uh across the supply chain but
this will happen again this industry is a very large industry now it's it's almost uh a half a
trillion in size and it will continue growing at least over the next five years about five percent
of growth so it's an industry that that definitely is very essential but i think that these these
supply and demand cycles continue to to be a sort of a a normal part every couple years you sort of
see this and i think one of the learnings that we're gonna find from this time around is that
is that there's a lot of interdependencies among the different technologies it's not just about
chasing the next technology but also making sure that you have enough investment for the existing
and mature technologies because maybe you have a very advanced system that you're building
and you can get the latest and greatest cpu on it but if you need a two dollar part
that does the power management or the regulation of the voltage and you can't get that part you
can't ship that system right and you're gonna find the same thing within any industry so
i think just a cloak again the business continuity planning the forecasting i think has to get better
and and a better understanding also of the demand and dynamics by the entire supply chain
great well thank you so much mario i really appreciate your time i think
you provided a really nice overview of kind of how we got here and who it's affecting and where the
where the tech industry goes from here so thank you so much for joining me i really appreciate
it thank you very much julia for inviting me i appreciate the time and thank you all so much for
watching this episode of today in tech if you like this video please do give it a thumbs up
and you can subscribe to our channel so you never miss an episode you can hit the bell
icon so you're notified every single time we post a new video which is just about every weekday if
you have any questions or comments about the chip shortage please do let us know in the comments
below i'm interested to hear your thoughts thanks again for watching and we'll see you next time
you