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Simon Segars took center stage at this week’s Web Summit in Lisbon to discussthe global chip shortage. While being optimistic about the health of the semiconductor industry, he argued that solving the current crisis will take some time.
Segars cited the number of days until Christmas: 53. “What’s significant about 53?” he asked. ”Well, this is the number of days there are until Christmas, and if you haven’t done all your shopping, and you ordered all the electronic devices that you were planning on, that I’m afraid, I’m here to tell you that you might be disappointed because you might not be able to buy everything that you wanted to buy. And the reason for that is because of this global shortage of semiconductors that you may have read quite a lot about in the news recently.”
“I’ve been in this industry a while, and I’ve never seen it as extreme as it is at the moment. We’ve been in situations before where there have been some cases of oversupply and, in other cases, undersupply, but it’s never been like it is right now. Today, I want to talk about how we got here, what the contributing factors are, and how to effectively spend the billions of dollars that it’s going to take to get out of there.”
Segars talked about the main culprits of the current crisis, which he mostly blames on a mismatch in supply and demand. He argued that moving chip production to computers, game consoles, and other home devices created a bottleneck for the other OEMs.
“When the pandemic started, lots of companies reacted very quickly. They stopped the production of things that they didn’t think people were going to need,” he said. “And cars were actually one of them. All the chip supplies were focused on the things that people really needed: the communication devices that allowed us to work from home, allow homeschooling to happen, and keep talking with our families. That’s where perhaps you went, and there is still a huge demand for devices like that. Nobody could predict when demand for things like cars was going to restart.”
Simon Segars, CEO of Arm, was the Web Summit’s keynote speaker.
The most important thing to do to get out of the woods in this situation and minimize similar ones in the future, he argued, is to improve collaboration between all players in the ecosystem.
“We need better collaboration across all players in the supply chain. So, make sure we understand the bottlenecks and build resilience into this supply chain in a steady state that works okay. But when you get an event and obviously the pandemic was a Black Swan event, like no other, it froze things off the hillside, and it’s very hard to recover.”
Segars is optimistic that current and future investments would ease the supply chain in the short term, but he is also cautious about not creating huge expectations. “About $2 million a week is going to be spent for the next couple of years to add capacity and build new facilities. And that’s going to add about 50 percent additional capacity over the next five years.”
The problem is where to add this capacity. Because of the current reliance on Asia for most chip production, many people think it is good to start building more capacity elsewhere. But the supply chain for the wafers — the building blocks of the output — is heavily concentrated, and setting up new wafer production is a much more difficult task. “There’s a whole ecosystem system that sits around these materials, lots of chemicals. I mean virtually the whole periodic table that is used in making semiconductors. You need industrial style, very pure chemicals to feed into these factories downstream. You need to test them, package them, ship them. So you need much more than just a chip factory to address these supply chain issues.”
Albert Liu, CEO of Kneron, a semiconductor company that designs and manufacturers Edge AI and machine learning chipsets for cars, agreed.
We spoke with Liu during the event, and he believes the biggest culprit is a surge of demand, mainly from the North American market. And, when people started buying cars again, some automakers, frustrated that they couldn’t get delivery, started placing duplicate orders to get priority, often offering to pay more. This also creates a more significant issue to plan production as fabs take a long time to retool production lines. He said there are other issues such as difficulties in sourcing raw materials and reduced freight capacity because of the pandemic.
Segars predicted next year’s Christmas might be much better for gift givers, but that consumers might still consider starting shopping early. And prices might not come down for a while.
What is essential, Segars said, is to be patient, collaborate and invest.
“Where are we going to be next Christmas? I expect these supply chain constraints to be a little better, but [they] won’t be completely fixed because this isn’t a short-term problem with a short-term solution. Billions of dollars are going to need to be spent in the coming years. And the decisions that we make today are going to affect the supply of this life, critical materials, semiconductors, over the next decade.
“Will we get this right? Will we spend enough? We spent too much, but we accidentally break the industries? That remains to be seen. That is the challenge that the industry is stepping up to” he added. “And in collaboration, across suppliers and customers and governments, we absolutely have to get it right!”