I’ve seen a number of articles on the microprocessor chip shortages that have been affecting smart phone, automotive, digital camera, TV, display and even toaster manufacturing; none have quoted any market statistics, so I though I’d have a stab… as well as using the data to suggest the causes and look at how long they will last.
This has been a vast global market – in 2020 36.6 billion chips were shipped creating $351b revenues and $78b net profit for their designers, fabricators and patent holders. Microprocessor are at the heart of the ITC industry of course, but have also been added to many other products we use everyday. My Figure above shows the spending trajectory of the various types of chip since 2003, of which processors (for PCs, smart phones and tablets, servers and embedded) are the most important, followed by memory (DRAM and NAND), peripheral (graphics, storage, etc.), network (mobile and fixed) an other (mainly custom).
A major complication in sizing this market is the split of suppliers into designers (usually patent holders) and fabricators – see my Figure above. Market leader Intel is virtually unique in being both; in fact it has only recently started offering to manufacture chips for other designers (such as IBM). Most designers are US companies; many of the fabricators are based in the Far East, with Taiwan the most important; mainland China is where the largest number of chips are fabricated.
I show the market shares of vendors and chip types in my Figure above; on the supplier side there are a number of different types – Intel is designer and fabricator, TSMC is a fabricator, Samsung sells IT products and smart phonesas well as designing and fabricating chips, Sony has a very wide portfolio of consumer, gaming and entertainment alongside its chip designer. The global disaggregated nature of the chip market has developed over time; witness how server vendors such as HP, IBM and Sun used to design and fabricate their own chips before outsourcing their fabrication to others. A number of smart phone suppliers more recently (Apple most importantly) have designed their own microprocessors, but fabricated by others. Even the chip companies themselves have undergone major changes not just in M&A activities; AMD for instance outsourced the fabrication of its chips some time ago.
I’m thankful to TSMC for the quarterly data used in my Figure above – it shows how its revenues were split by wafer process technology. It demonstrates a number of important issues. In particular:
- Only two process sizes (0.18um and 10nm) have ceased to be made; all the others continue to contribute to its revenue, whether from stock or from continued fabrication.
- Since 2014 new product introductions have succeeded more rapidly, demonstrating that our hunger for the latest chips has been getting stronger.
This rush to the new and long-tail need for the old partially explains the current shortages, especially as demand for a number of products in which both are used (cars, trucks, aeroplanes, etc.) dropped to near zero levels at the worst time of the pandemic.
So why are we suffering from shortages of microprocessors across the board? I can think of a number of reasons:
- There have been ever more rapid process technology introductions and successes from chip fabricators.
- The huge investments needed for fabrication plant limits chip manufacturing to a a handful of global companies supported by national subsidies.
- The US government treats chip patents as national assets to be protected by sanctions and bans.
- US sanctions reduced the number and value of chips sold in 2019, especially to Chinese smart phone vendors, for 5G networking and for Chinese supercompters.
- The pandemic forced a number of chip plants to close temporarily and slowed demand in many areas.
There is no easy fix for the current shortages, especially as the pandemic has also sped up the demand of digitization across the board in most countries. Ideally we would end up with processors free from national government interference, available for any manufacturer to use, with less importance placed on the latest and greatest… But I’m expecting things to get worse and products using microprocessors to get more expensive.