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
firms 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.Smallerfirms,suchasInfine
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 firmofanalysts
(seechart).Ifhistoryisa guide,then,a glut
isinontheway.Theonlyquestioniswhen.
Soon,manyanalyststhink.Demandfor
smartphonesmaybecooling,especiallyin
China,theworld’sbiggestmarket.Salesof
pcs,whichboomedduringcovid19lock
downs,alsoseempoisedtoweaken,says
AlanPriestleyofGartner,a researchfirm.A
surveybyMorganStanley,a bank,found
that,partlythankstotheshortages,55%of
chipbuyersweredoubleordering,which
artificiallyinflatesdemand.Highinflation
andloominginterestraterisescouldhit
economicgrowth—andchipdemandwith
it.MrPennexpectsthecycletoturninthe
secondhalfof 2022 orinearly2023.
Thistimetheglut,whenitcomes,may
notaffectallchipmakersequally.tsmc’s
boss,C.C.Wei,saidthismonththata cor
rectioncouldbe“lessvolatile”forhisfirm
thankstoitspositionatthetechnological
cuttingedge.Muchofitsnewcapacityis
already booked up in longterm agree
ments with customers such as Apple,
whichneedsa regularsupplyofthemost
sophisticatedchipsforitsnewestiPhones.
Thecurrentcyclemaydifferfromprevi
ousonesforanotherreason.The short
ages,andAmerica’stechflavouredtrade
warwithChina,haveremindedpoliticians
howvitalchipsaretothemodernecon
omy—andhowoverrelianttheirsupplyis
ona fewgiantfirms.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
effect,urgingCongresstopassa bill,alrea
dyapprovedbytheSenate,thatincludes
$52bninhandoutsforchipmakers.Mark
Liu,tsmc’schairman,wasfrankin 2020
whenhesaidsuchsubsidieswerevitalto
persuadehisfirmtobuilda newplantin
Arizona,oneofonlya fewoutsideTaiwan.
IntelchoseOhioforitsfactoriespartlybe
causeofincentivesofferedbythestate.Pat
Gelsinger,itsboss,hasbeentouringrich
placesthathavemadesimilaroffers.
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 fullyfledgedchip
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