The chip industry is constantly struggling to forecast demand, despite the growing economic data available. For more than two decades, the same pattern of cycles of recovery and recession has been repeated, four to five years apart. And every time that happened, the chip makers vowed that their forecasts would be much more accurate next time. And every single time that failed, they said they would do well next time. And this tradition continues to this day.
What is thought-provoking: How severe is the chip shortage we are hearing about? And how long will it last? And can we rely on long-term deficit forecasts?
Because if we look back at the chip industry from a decades-old perspective, we would say that we are likely to see the same as we have always seen in the industry: a sudden increase in demand followed by an equally sharp decline: the classic boom and bust scenario is revolving.
For example: Just last year, the Semiconductor Association (SIA) published its mid-2020 report and it was overcast. “After a record sales of $ 468.8 billion in 2018, global sales fell 12 percent to $ 412.3 billion in 2019.” According to SIA, sales in 2020 will be negatively affected by the COVID-19 pandemic, and modest revenue growth was then forecast for 2021.
However, the chip market has picked up again this year and there is no underestimation that chip revenues are up 26 percent or more month-over-month from the previous year. And the semiconductor industry now predicts a long-term chip shortage, which will result in chip revenues booming in 2021 to 2022.
However, this forecast is likely to be as unreliable as in the past, due to that it is incredibly difficult to calculate real chip demand.
In times of shortage, this is even more difficult as customers place double and triple orders and try to accumulate stocks by all possible means. This creates a certain level of false demand, which disappears as production starts better.
This is a big problem for chip manufacturers because the production of chips takes at least 6 months and once started, it cannot be stopped. Chip plants have to operate at almost full capacity, otherwise operating costs are unsustainable. only one can produce huge quantities that exceed the older generations of factories. The economy of the chip industry requires that chip manufacturing plants produce continuously at almost full capacity. It is not possible to slow down production lines because demand has fallen. It must be manufactured continuously. Chip companies can only reduce production if they do not build another multi-billion dollar plant.
And that is why there is a shortage of chips again. Chip companies need to schedule their investments accurately because gigantic capital investment needs to be put to work as quickly as possible. Companies can stop building factories and continue later, but they can’t stop production once they’re up and running.
And every new factory produces a much larger amount of chips than previous generations of factories. Productivity has been evolving at the pace of Moore’s Law for more than 60 years.
Chip manufacturers may have a hard time, but the flood of cheap chips is a bonus for all kinds of electronics companies and digital device inventors. This encourages innovation and the miniaturization of chips makes performance, chips become faster, less energy consuming and cheaper in the ample supply.
This current chip shortage may be shorter than what the chip industry expects and if again, with too much investment in manufacturing, it will cause the next big chip user boom. Whatever it is.
This shows that the chip industry is incredibly essential to the health of the entire technology industry and almost every other industry.
Hardware, software, tests , curiosities and colorful news from the world of IT by clicking here