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Chip Chain Remains Tight

Signs of a normal first-quarter seasonal slowdown are now scarcer than hens' teeth. Fourth-quarter wafer sales at {complink 5388|Taiwan Semiconductor Manufacturing Co. (TSMC)} — representing the industry’s first-quarter IC sales — were essentially flat from the third quarter. Meanwhile, the outlook for the first quarter of 2011 (parts meant for consumption in the second quarter) is also seen as flat or unchanged.

There is simply no breathing space left in the supply chain and no chance to catch up before the second-half seasonal rebound. As I said in a previous report, we are in for a very strong year indeed. Fab-tight is now the new Fab-lite. (See: Stop Agonizing: 2011 Will Be a Strong Year.)

Several OEMs are already reporting production problems resulting from shortages of some components at a time foundry capacity remains tight and overstretched. Notably, it was widely reported that {complink 2376|Hewlett-Packard Co.} was forced to revise downward its notebook shipment goal for January due to a delay in shipments of some key parts from upstream suppliers, including manufacturers of CMOS sensors and CPUs.

The shortage in the supply of CMOS sensors has been aggravated by the strong demand from the Smartphone and tablet computer markets in addition to surging sales of laptop and notebooks. The real culprit, however, is that equipment vendors are not providing any long-term order commitments any more, making supply chain planning difficult at best. In fact, effective planning is almost impossible today. This is complete madness, given the complexity of the supply chain and the logistics involved.

There is a clear warning here to all fabless and fab-lite firms alike: no wafers, no ICs, and no sales for you or your OEM customers. That is the real strategic value of integrated device manufacturers, or IDMs. In CPUs, Intel controls the OEM sales channel (by deciding which CPUs to wafer fab). The situation will get complicated for semiconductor companies that rely on foundries as we move down to sub-30nm technology. Dual foundry sourcing was never a problem at 90nm and above, but at 32nm and below, a second source may be impossible to find or may not readily be available.

Porting a design from one foundry to another will not be an option.

2 comments on “Chip Chain Remains Tight

  1. Ashu001
    February 28, 2011

    Malcolm,

    Super Post!!

    I especially liked your comments here,

    “The real culprit, however, is that equipment vendors are not providing any long-term order commitments any more, making supply chain planning difficult at best. In fact, effective planning is almost impossible today. This is complete madness, given the complexity of the supply chain and the logistics involved.”

    You can't really blame equipment vendors here either.Its because of super-fast markets which are in total flux today.Todays Hit is tommorow's flop and some totally unsung company comes out with a super-Hit leaving suppliers scrambling to fill the breach.

    So what are Vendors to do??? Keep things as Light,lean and flexible as possible.

    Regards

    Ashish.

  2. jbond
    February 28, 2011

    I have to agree with you. As easy as it would be to blame these equipment vendors, it is understandable to see their reasoning. As you said “today's hit is tomorrows flop”. It is hard to invest millions of dollars on supplies when the market is changing so fast. Everybody is trying to run as lean as possible and hoping that the suppliers can provide the needed materials as fast as they can without interrupting their supply chains. 

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