The Economist - USA (2022-01-29)

58 Business TheEconomistJanuary29th 2022

warnedthatcontinuing shortagescould

forcefactoriestoclose.

The transportofgoodsisnotgetting

much freer, either. Container­shipping

ratesarecreepingbackuptotherecordlev­

elsoflastsummer. Analystsdonotexpect

muchreliefbeforethesecondhalfofthe

year.Shortagesofworkersaremakinglife

harder still. ihs Markit, a consultancy,

notesthatAmerica’slabourforceis4mbe­

low pre­pandemic levels, Europe’s has

beendisruptedbyreducedmovementof

migrantworkersandAsia’sbystrictnew

lockdowns.Raytheonblameda tightsup­

plyof“castings”,vitalforjet­enginetur­

bineblades,ona dearthofskilledwelders.

American TruckingAssociations,atrade

body,saidlastyearthattheindustryfaced

a shortageof80,000lorrydrivers.

Theseconstraintsarealladdingtocosts

ofparts,materialsandwages.Throwin

higherenergypricesandindustrialcom­

panies everywhereface atough startto

2022.Withalltheseobstaclesshowinglit­

tle signs ofdisappearing,supplychains

maywellcomehighupthelistofexcusesif

firms unveildisappointing quarterly re­

sultsina fewmonths’time. n

Chipmaking

Partyon

A

mida chipshortagethathashobbled

producersofeverythingfromtoysto

windturbines(seepreviousarticle),chip­

makersareona spendingspree.OnJanu­

ary13thTaiwanSemiconductorManufac­

turingCompany(tsmc),theworld’s big­

gestcontractmanufacturer,saiditwould

spend upto $44bn onnewcapacity in

2022.Thatisupfrom$30bnlastyear,triple

thenumberin 2019 andaheadofearlier

planstospendover$100bnintotaloverthe

nextthreeyears.Intel,anAmericanrival,

planstoburnthrough$28bnthisyear.On

January21stitsaiditwouldbuildtwobig

newfactoriesinOhioby 2025 ata totalcost

of$20bn.Anoptiontobuildsixmorelater

wouldtaketheoverallpricetagto$100bn.

Samsung ofSouthKorea, tsmc’sclosest

technologicalrival,hashintedthatitscap­

ital spending for 2022 will surpasslast

year’s$33bn.Smallerfirms,suchasInfine­

oninEurope,arealsosplurging.

icInsights,aresearchgroup,reckons

that,acrosstheindustry,capitalspending

roseby34%in2021,themostsince2017.

Thattorrentofmoneyiswelcomenewsfor

theindustry’scustomers,whohavebeen

strugglingwithshortagesforovera year.

Fortheindustryitself,itisthelatestitera­

tion ofa familiar pattern. Bumper rev­

enues,likethosereportedbyIntelonJanu­

ary26thandSamsungthenextday, compel

companiestoexpandcapacity.Butbecause

demand canchangemuchmorequickly

thanthetwoormoreyearsneededtobuild

achipfactory,suchboomsoftenendin

busts.The chipbusinesshasswungbe­

tween over­ and undercapacity since it

emergedinthe1950s,observesMalcolm

PennofFutureHorizons,a firmofanalysts

(seechart).Ifhistoryisa guide,then,a glut

isinontheway.Theonlyquestioniswhen.

Soon,manyanalyststhink.Demandfor

smartphonesmaybecooling,especiallyin

China,theworld’sbiggestmarket.Salesof

pcs,whichboomedduringcovid­19lock­

downs,alsoseempoisedtoweaken,says

AlanPriestleyofGartner,a researchfirm.A

surveybyMorganStanley,a bank,found

that,partlythankstotheshortages,55%of

chipbuyersweredouble­ordering,which

artificiallyinflatesdemand.Highinflation

andloominginterest­raterisescouldhit

economicgrowth—andchipdemandwith

it.MrPennexpectsthecycletoturninthe

secondhalfof 2022 orinearly2023.

Thistimetheglut,whenitcomes,may

notaffectallchipmakersequally.tsmc’s

boss,C.C.Wei,saidthismonththata cor­

rectioncouldbe“lessvolatile”forhisfirm

thankstoitspositionatthetechnological

cutting­edge.Muchofitsnewcapacityis

already booked up in long­term agree­

ments with customers such as Apple,

whichneedsa regularsupplyofthemost

sophisticatedchipsforitsnewestiPhones.

Thecurrentcyclemaydifferfromprevi­

ousonesforanotherreason.The short­

ages,andAmerica’stech­flavouredtrade

warwithChina,haveremindedpoliticians

howvitalchipsaretothemodernecon­

omy—andhowover­relianttheirsupplyis

ona fewgiantfirms.Worriesaboutthesec­

tor’s excessive concentration have led

trustbusterstochallengethe$40bnacqui­

sitionbyNvidia,anAmericanchipdesign­

er,ofArm,a Britishone—successfully,if

newsreportsthisweekthatthedealisbe­

ingscrappedaretobebelieved.

Butgovernments’favouredwaytodeal

withtheover­relianceistoluremorechip­

makinghome,mostlyfromEastAsia,with

subsidies.OnJanuary25thAmerica’sCom­

merceDepartmentissueda reporttothat

effect,urgingCongresstopassa bill,alrea­

dyapprovedbytheSenate,thatincludes

$52bninhandoutsforchipmakers.Mark

Liu,tsmc’schairman,wasfrankin 2020

whenhesaidsuchsubsidieswerevitalto

persuadehisfirmtobuilda newplantin

Arizona,oneofonlya fewoutsideTaiwan.

IntelchoseOhioforitsfactoriespartlybe­

causeofincentivesofferedbythestate.Pat

Gelsinger,itsboss,hasbeentouringrich

placesthathavemadesimilaroffers.

TheeuiskeentomatchtheAmericans,

potentiallyputtingitselfonthehookfor

tensofbillionsofdollarsofitsown.Itas­

pirestodoubleEurope’sshareofchipmak­

ing,currentlyaround10%.InMaySouth

Korea’sgovernmenttalked ofa national

mission to provide $450bn of capital

spendingovertenyearstoprotectandex­

panditsnationalindustry.InNovember

Japanunveileda schemeofitsown,with

tsmcthoughttobegettingsome$3.5bn.

Chinahaslong nurturedambitions—in­

vigoratedbyAmericansanctionsbutsofar

unsuccessful—tobuilda fullyfledgedchip

industry(seeInternationalsection).

Addingtaxpayercashtochipmakers’al­

readyrichspendingplans,saysMrPenn,

couldleadthemtobuildevenmoreexcess

capacitythanusual.Thatshouldgivepoli­

ticiansandchipceos pause.Thebiggerthe

boom,thedeeperthesubsequentbust.n

Bustsfollowboomsinthechipbusiness.Governmentsmaymakethingsworse

Chip dips

Worldwide semiconductor industry, % change on a year earlier

Sources:ICInsights;WSTS;FutureHorizons

To t a l

Long-termstorage

Short-termmemory

Application-specificchips

Analogue/other

Contractchipmaking

General-purposeprocessors

6040200-20

Capital expenditure, by product type

2020 202^100

75

50

25

0

-25

-50

21102000908070601950

Revenues