Semiconductor plants without electricity: Cold wave in USA paralyzes chip production

Thursday February 18, 2021

Semiconductor manufacturer without electricity
Cold wave in USA exacerbates chip crunch

By Diana Dittmer

The situation on the global semiconductor market is becoming increasingly tense. An arctic winter storm has a firm grip on large parts of the United States. Because the power supply breaks down, chipmakers in Texas have to shut down their plants.

The arctic cold in the United States, which has already killed over 20 people and cut off power to millions, is hitting the semiconductor industry at a sensitive point. In the US state of Texas hardest hit by the onset of winter, the local energy supplier had to ask all chip manufacturers based in Austin to stop production so that enough electricity remains for health care. A particularly large number of chip manufacturers have settled in the region because of the low corporate taxes.

NXP, one of the largest suppliers to auto companies, shut down two plants in Austin. Samsung, the second largest semiconductor manufacturer in the world, and Infineon also stopped production.

The timing to cut production couldn't be worse. The situation on the global semiconductor market is tense. The demand for chips from the entertainment and automotive industries rose massively at the end of last year. Lockdown and home office have pushed sales to laptops to their highest level in ten years. The demand for household appliances, from televisions to air purifiers, has also increased significantly. Hoarding and bunkering of chips is very popular. Not least because of the US sanctions, companies have started to store stocks that were previously not so common. Many automakers complain of supply problems.

NXP: "Possible supply bottlenecks"

Typically, the plants in Texas run around the clock, seven days a week. Far fewer semiconductors are manufactured in the USA than in the large plants in Taiwan and South Korea. But because it is becoming increasingly difficult to meet the demand on the world market with products from Asia, the importance of the US plants is also growing. NXP has already warned its customers of "possible supply bottlenecks". Samsung let it be known that there is still no schedule when production can start again. Interrupting the highly complex production – even for a short time – could also result in losses of several million dollars for the company, writes the "Financial Times" (FT).

The shutdown of the plants in the US will "undoubtedly have an effect on the already great shortage of chips," the newspaper quoted an analyst from the market research institute Creative Strategies. Large car manufacturers such as Volkswagen, Ford and Toyota have already cut their production due to the lack of components. Tens of thousands of cars could not have been sold in China because of the delivery bottlenecks, said Volkswagen's China boss Stephan Wollenstein this week. Daimler also reports delivery bottlenecks. Business will suffer as a result, especially in the first few months of 2021, according to the annual figures. However, it is currently assumed that the lost production volume can be made up again by the end of the year.

The experts at IHS Markit estimate that the production of one million vehicles will be delayed in the first quarter, which could destroy potential sales of 61 billion US dollars in the automotive industry. The effects of the chip crunch for the much larger electronics industry are likely to be even greater. From cell phones to game consoles, semiconductors are processed everywhere. The bottlenecks should also make themselves felt in higher prices.

Calls for help to Taiwan

The shortage of semiconductors makes it clear to what extent the world economy is dependent on Taiwan. The island republic is home to the largest semiconductor manufacturer in the world. When Apple needs ultra-fast microchips, the iPhone manufacturer turns to TSMC. The reliable chip giant from Taiwan is the undisputed top dog in the industry. After the German Minister of Economic Affairs Peter Altmaier, the top economic advisor to US President Joe Biden, Brian Deese, turned to the Taiwanese government with a request for help, as Bloomberg writes. Economy Minister Wang Mei-hua reportedly replied that he would try to fix the bottlenecks.

Not only Apple and the German carmakers would welcome that. The American auto industry also considers the government's efforts to be correct and hopes for an easing of the situation: The supply difficulties would "be a problem in the first half of the year," said Matt Blunt, President of the American Automotive Policy Council, which works for Ford, General Motors and Stellantis (formerly Fiat Chrysler) starts.

In the future, however, the governments are looking for a different solution. Biden wants to make the US industry more independent when it comes to sourcing semiconductors. That is also the declared aim of Chancellor Angela Merkel and French President Emmanuel Macron. In December they agreed to accelerate the development of a European chip industry.