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This article is sadly incorrect (not poor journalism necessarily, but based on statements from vendors who are defending their own interests). Big name manufac

This article is sadly incorrect (not poor journalism necessarily, but based on statements from vendors who are defending their own interests). Big name manufacturers are refusing to invest in fab expansion because they believe (correctly) that total demand for semiconductors has barely moved. What has changed is the confidence in the market (and this was destroyed by a major fuckup by car manufacturers deciding to screw over their suppliers at the expense of literally the entire industry). Nobody is actually producing more electronics (many manufacturers are producing less because they need to ration supply and can't allocate as much to specific products and risk not being able to produce others). Everyone is buying more, because they can't be confident they'll be able to get stock when they need it. Chip manufacturers know that anything they put on the market now will be gone immediately, at any price. They also know that one day everyone will have enough stock stockpiled and will stop buying for a while. If they increase production now, they have added expenses and a limited time to recoup them before there's oversupply on the market. If they keep production at current levels, they get more revenue as the prices are higher, and lower costs so they can weather the coming overproduction phase better. It makes zero economic sense to expand production. Some chip manufacturers are asking customers up front for demand visibility several years out to be able to plan better. Others are being absolute dicks and doing the same thing in an openly-hostile way by holding customers hostage (yes we know you ordered two reels of this part and we promised delivery by date X. We won't deliver on date X unless you also order and pay for another ten reels which we won't commit to a delivery date on, and also your order for the two reels is non-cancellable and non-refundable). I can't name this company because it would put the customer at risk, but they're a household name in the industry. The core problem is everyone is operating in the dark and there's no visibility into future demand, supply, pricing, or availability. In this situation, large capital expenses make sense on the buyer side (to ensure future supply and widen their visibility horizon) but not on the supplier side (who then shoulder the risk of future demand cratering and being left sitting on their capex).

libertine 5y ago
>Chip manufacturers know that anything they put on the market now will be gone immediately, at any price. Isn't this part of the problem of having cheap money to go around? I've got anecdotal feedback last year from some friends in different industries (mainly construction), complaining that "The americans are hoarding everything...", he said this after complaining they were buying concrete in the secondary market. Like, when Apple buys full production of 3nm at TSMC[0] - isn't this in a sense anti-competitive practice? They have access to unlimited money, it's like you have a cheat in the real world. The end game is that money starts to lose it's value, like it's happening now. I hate to use this term, but maybe the WTC or some entity should start to think that the idea of "quotas" maybe ain't that bad in a globalized world that has countries printing money like crazy. They completely fuck up entire supply chains out of greed and fear. Then those "quotas" could be sold around, but at first no one should be harmed due to some crazy practices. [0]https://www.club386.com/tsmc-apple-first-3nm-policy-leads-to-amd-and-qualcomm-mutiny/ https://www.club386.com/tsmc-apple-first-3nm-policy-leads-to...
- wbsss4412 5y ago
  Apple buying full production of TSMC’s 3 nm node represents real product demand, though. It’s one thing I’d you’re buying up capacity that you can’t utilize, but it’s another when you simply are that big of a buyer.
- ryan93 5y ago
  Are you really suggesting a world government? Your comment should almost be treated as spam.
  - epgui 5y ago
    That’s not what they’re suggesting, and even if it was, you’re probably wrong about how clearly-bad that would be.
    - ryan93 5y ago
      im not
  - libertine 5y ago
    I don't get where you got this from, you have global organizations without world governments, to supervise global rules - like the WTO, World Trade Organization (I made a typo called it WTC, should be WTO). >The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to ensure that trade flows as smoothly, predictably and freely as possible.[0] [0]https://www.wto.org/english/thewto_e/thewto_e.htm https://www.wto.org/english/thewto_e/thewto_e.htm You might consider that these organizations are bad, you're entitled to an opinion. No need for drama.
cinquemb 5y ago
> In this situation, large capital expenses make sense on the buyer side (to ensure future supply and widen their visibility horizon) Does it? Are these actually large capital expenses ("cash" [or credits on a bank balance sheet] is actually being locked up and transferred to the suppliers) or are these purchase orders where fractions of the cash are actually transferred at the point these long term deals are being made and some ones else is actually on the hook (i.e a creditor) securing that? Because if its something like the latter (which I'm pretty sure it is), suppliers still run the risk of future demand cratering as well as the buyers (esp the ones that are fronting the cash and still will have that innovatory on hand until they can actually unload it on to consumers in finished products), and if Jeffery Snider who as been warning about something like this for months now and more recently in "When GDP’s Almost All Inventory" [0], I'm pretty sure those buyers are gonna get hosed with the suppliers… [0] https://alhambrapartners.com/2022/01/27/heightened-conflict-of-interest-rates-when-gdps-almost-all-inventory/ https://alhambrapartners.com/2022/01/27/heightened-conflict-...
- Kliment 5y ago
  Unless you're a giant customer with something big to beat up the vendors with, like high-level political connections, you're going to be paying up-front for delivery sometime in the distant future if you order anything today. Many vendors won't take any orders without payment up-front.
  - cinquemb 5y ago
    Ok, so many vendors might get through unscathed for the duration of those orders (but not after, and not if one excludes all the auxiliary services to the buyers who will become stressed with all the inventory on their hands that vendors expect their buyers to also purchase from them along the way for the duration of those orders), but their buyers wont.
lionhead 5y ago
Interesting, thanks for sharing. What does this imply for the GPU market in your view?
- Kliment 5y ago
  The GPU market is ruined by fuckers who are buying up all inventory and reselling it to either desperate system integrators and users, or to crypto fuckers at an enormous markup. This is an entirely different problem compared to what we're talking about here.
totalZero 5y ago
> Big name manufacturers are refusing to invest in fab expansion because they believe (correctly) that total demand for semiconductors has barely moved. This is false. First, big name manufacturers are indeed building more fabs. Second, there appears to have been demand creation in the semiconductor market rather than just a transitory demand spike.
- jcranberry 5y ago
  I don't doubt what you're saying but could you source/expand on your claims?
- coryrc 5y ago
  They're not investing unusual amounts in new fabs, nor are they investing in anything but the cutting edge.
  - digikata 5y ago
    Perhaps only cutting edge makes sense to build new, and once there is increase of cutting edge capacity, older fabs will gain spare capacity to be used for automotive and other industrial users.

libertine 5y ago

>Chip manufacturers know that anything they put on the market now will be gone immediately, at any price. Isn't this part of the problem of having cheap money to go around? I've got anecdotal feedback last year from some friends in different industries (mainly construction), complaining that "The americans are hoarding everything...", he said this after complaining they were buying concrete in the secondary market. Like, when Apple buys full production of 3nm at TSMC[0] - isn't this in a sense anti-competitive practice? They have access to unlimited money, it's like you have a cheat in the real world. The end game is that money starts to lose it's value, like it's happening now. I hate to use this term, but maybe the WTC or some entity should start to think that the idea of "quotas" maybe ain't that bad in a globalized world that has countries printing money like crazy. They completely fuck up entire supply chains out of greed and fear. Then those "quotas" could be sold around, but at first no one should be harmed due to some crazy practices. [0]https://www.club386.com/tsmc-apple-first-3nm-policy-leads-to-amd-and-qualcomm-mutiny/ https://www.club386.com/tsmc-apple-first-3nm-policy-leads-to...

wbsss4412 5y ago
Apple buying full production of TSMC’s 3 nm node represents real product demand, though. It’s one thing I’d you’re buying up capacity that you can’t utilize, but it’s another when you simply are that big of a buyer.
ryan93 5y ago
Are you really suggesting a world government? Your comment should almost be treated as spam.
- epgui 5y ago
  That’s not what they’re suggesting, and even if it was, you’re probably wrong about how clearly-bad that would be.
  - ryan93 5y ago
    im not
- libertine 5y ago
  I don't get where you got this from, you have global organizations without world governments, to supervise global rules - like the WTO, World Trade Organization (I made a typo called it WTC, should be WTO). >The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to ensure that trade flows as smoothly, predictably and freely as possible.[0] [0]https://www.wto.org/english/thewto_e/thewto_e.htm https://www.wto.org/english/thewto_e/thewto_e.htm You might consider that these organizations are bad, you're entitled to an opinion. No need for drama.

cinquemb 5y ago

> In this situation, large capital expenses make sense on the buyer side (to ensure future supply and widen their visibility horizon) Does it? Are these actually large capital expenses ("cash" [or credits on a bank balance sheet] is actually being locked up and transferred to the suppliers) or are these purchase orders where fractions of the cash are actually transferred at the point these long term deals are being made and some ones else is actually on the hook (i.e a creditor) securing that? Because if its something like the latter (which I'm pretty sure it is), suppliers still run the risk of future demand cratering as well as the buyers (esp the ones that are fronting the cash and still will have that innovatory on hand until they can actually unload it on to consumers in finished products), and if Jeffery Snider who as been warning about something like this for months now and more recently in "When GDP’s Almost All Inventory" [0], I'm pretty sure those buyers are gonna get hosed with the suppliers… [0] https://alhambrapartners.com/2022/01/27/heightened-conflict-of-interest-rates-when-gdps-almost-all-inventory/ https://alhambrapartners.com/2022/01/27/heightened-conflict-...

Kliment 5y ago
Unless you're a giant customer with something big to beat up the vendors with, like high-level political connections, you're going to be paying up-front for delivery sometime in the distant future if you order anything today. Many vendors won't take any orders without payment up-front.
- cinquemb 5y ago
  Ok, so many vendors might get through unscathed for the duration of those orders (but not after, and not if one excludes all the auxiliary services to the buyers who will become stressed with all the inventory on their hands that vendors expect their buyers to also purchase from them along the way for the duration of those orders), but their buyers wont.

lionhead 5y ago

Interesting, thanks for sharing. What does this imply for the GPU market in your view?

Kliment 5y ago
The GPU market is ruined by fuckers who are buying up all inventory and reselling it to either desperate system integrators and users, or to crypto fuckers at an enormous markup. This is an entirely different problem compared to what we're talking about here.

totalZero 5y ago

> Big name manufacturers are refusing to invest in fab expansion because they believe (correctly) that total demand for semiconductors has barely moved. This is false. First, big name manufacturers are indeed building more fabs. Second, there appears to have been demand creation in the semiconductor market rather than just a transitory demand spike.

jcranberry 5y ago
I don't doubt what you're saying but could you source/expand on your claims?
coryrc 5y ago
They're not investing unusual amounts in new fabs, nor are they investing in anything but the cutting edge.
- digikata 5y ago
  Perhaps only cutting edge makes sense to build new, and once there is increase of cutting edge capacity, older fabs will gain spare capacity to be used for automotive and other industrial users.