The technology shortage is wreaking havoc in the market, and the world’s largest chipmakers are bending over backwards to source as many raw materials as possible in order to solve the problem. As Nikkei Asia reported, the world’s top nine chipmakers hit a record $ 64.7 million in raw material inventories in June as they continue to ramp up production.
The total inventory of these chipmakers, including TSMC, Intel, Samsung, Micron, SK Hynix, Western Digital, and more, is now at all-time highs. The amount of raw materials in the total inventory has been steadily increasing since March 2019, to the point that all of these companies have at least 24% more inventory than before.
Despite the large stockpile of raw materials, the demand for semiconductor chips remained incredibly high, canceling out the increase in production. This is in large part thanks to the auto industry, which would buy far more chips than it needs to build cars.
Traditionally, automakers have used the “just in time” strategy for processors, which means they order chips as needed. But now, many automakers are planning to shift gears by holding years of stock to make sure there is enough reserve to last in the event of a further shortage.
While this is a good idea for automakers, it could prove to be a big deal for chipmakers in the future. Having an “artificial” demand for chips means there could be a huge drop in demand down the road, which could cost chipmakers a lot of money.
However, there are ways to prevent this from happening. For example, Toyota wants to create a new centralized inventory that monitors both chip production and the number of chips going to its storage sites. This solution could potentially be ideal for chipmakers, allowing automakers not to overbuy chips and avoid a massive drought in demand.
But the auto industry is not the biggest consumer of semiconductor chips, so the technology shortage is still largely due to sales of devices, smartphones and computers.
Fortunately, chipmakers now have a significant amount of raw materials to use when needed. The problem is the current manufacturing capacity which currently cannot support market demand.
Intel and TSMC are building new factories in the United States, which is expected to be the killing blow to the technology shortage. All we have to do is wait a year or two until these facilities are up and running.