Tech supply chain squeezed as demand for devices booms

TAIPEI — For the sales representatives at chip contract manufacturer United Microelectronics, this is usually the busiest season — time to chase after customers and fill the order books for next year. But this year the situation is just the opposite: UMC’s customers are scrambling for supplies.

Companies from Intel, the U.S. tech giant that sources manufacturing of Wi-Fi and power chips to UMC, to MediaTek, a leading mobile chipmaker, and Realtek, a key provider of Bluetooth and Wi-Fi chips, are all asking UMC for more support, two people familiar with the matter said.

“Most of the time we are begging for more chip orders and chip developers are asking for price cuts,” one of the people said. “But this time even if they were willing to pay more, we do not have much additional capacity to support them.” 

Most of UMC’s capacity is fully booked through the second quarter of next year and some is not available until the end of next year, the people said.

“It is like a hotel that is fully booked — and it is really not likely that we could build extra rooms very soon to meet the surging demand,” one of the people said.

UMC declined to comment on specific customers. Intel told Nikkei Asia in a statement: “The PC industry has seen unprecedented demand this year, driving record demand for Intel Wi-Fi products. We’re constantly working with our supply chain to ensure that we can support our customers.”

Mediatek and Realtek both previously said they were working with their production partners to alleviate the component shortage issues.

The boom for UMC — the world’s fourth largest contract chipmaker by revenue and whose customers also include Qualcomm and Sony — is far from unique. Most production capacity at Taiwan Semiconductor Manufacturing Co., the world’s biggest contract chipmaker, is also fully booked toward the third quarter of next year, according to two people familiar with the matter, though these orders are still subject to adjustment.

TSMC told Nikkei that demand currently looks “robust”.

These supply constraints reflect a happy problem for the entire tech industry; stellar demand is leading to an unprecedented shortage of a wide range of components used in electronics devices, from computers and smartphones to game consoles and cars.

The scramble for parts cuts across various segments — from basic materials like glass and substrates to semi-finished components such as displays, one of the priciest bits of many electronic devices. And it covers chips from processors and driver integrated circuits to those used for power management and connectivity — all of which are made by companies such as TSMC and UMC and supplied to different chip developers to fulfill device-builders’ demand further down the supply chain.

“It’s been a long while since we witnessed such big range of component shortages… I can tell you the lead time for some of the [integrated circuits] is as long as 12 months, while for many of the components you will have to wait six to eight months if you order now,” said Andrew Chen, CEO of Kinpo Electronics, which supplies Dyson, HP, and Huawei. Kinpo is a sister company to Compal Electronics, which makes Apple Watches and Dell notebooks.

The consequences are apparent in a big rise in profitability for key suppliers. America’s biggest memory chipmaker Micron just raised its earnings outlook while many leading display makers — from China’s national champion BOE Technology Group to LG Display of South Korea — reported a significant improvement in earnings for the third quarter of 2020. Micron’s shares jumped to a 20-year-high last week.

TSMC’s share price has surged to a record level, advancing more than 50% so far this year, while UMC’s shares have more-than-doubled this year to a nearly 20-year-high.

The tech industry is one of the few sectors to have enjoyed growth during the coronavirus pandemic this year. The component shortage indicates the industry’s overall optimism for a robust recovery…

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