Why Microchips Are in Short Supply

Apr 12, 2021

Translated from Lutte Ouvrière (Workers’ Struggle), the newspaper of the revolutionary workers’ group active in France.

A new shortage hit the world economy, after shortages of facemasks, test kits, and vaccines: a shortage of microchips. The automobile industry uses more and more of these high-tech electronic components, and the shortage is most evident among auto companies.

Automakers have shut down assembly lines in the U.S. and in Europe. Renault shut down its plants in Sandouville and Flins in France for two days.

When France’s government declared the first lockdown last March, automakers suspended their orders with suppliers like Valeo, Faurecia and Bosch, which in turn canceled their orders with semiconductor producers. Computer chips are designed more and more into the components of modern cars, such as braking systems, airbags, and fuel systems. So later, when the automobile factories revved up production again, the equipment suppliers—who had gambled that their inventories on hand would be enough for them—found themselves short and had to restart production on a rush basis.

But the microchip industry is extremely concentrated. The race to make ever smaller and more powerful chips means that today, companies have to be able to make and sell hundreds of thousands of chips to be profitable. The world leaders in electronics—mainly American and Japanese companies—have offloaded production onto a handful of trusted subcontractors in order to focus on chip design, which is much more profitable. At this time, the world’s production of microchips is done by a few giant companies mostly located in Taiwan and South Korea.

The biggest manufacturer is Taiwan’s TSMC, which makes microchips for Apple phones and computers and 70% of microchips in automobiles. So the production bottleneck is not new.

The bottleneck is the result of industrial and commercial choices made by the big electronics cartels. But it worsened this year with the high demand for computers because of the rise of working from home and the arrival of 5G phones. So orders are exploding and factories are running at full capacity. Deliveries are made after long delays, because it takes months to set up a production line adapted to a specific electronic product. Chips in Apple phones have nothing to do with chips in an automobile engine.

Auto production delays are somewhat exaggerated, but are also used by the manufacturers to pressure European and American governments to force the government of Taiwan and semiconductor producers there to produce automobile-related orders ahead of other orders. Meanwhile, world electronics leaders want to take advantage of the crisis to get billions of dollars of additional public subsidies, often in the name of “national economic independence.”

In the U.S., giants Intel, AMD and Qualcomm—which design and sometimes produce microchips for many different computer manufacturers—wrote to President Biden asking for substantial funding and subsidies. The economic war is going well! And billions are sure to rain down on these manufacturers. But nothing says they will use this money to build new microchip production lines. Production is very expensive. It is only profitable if production quantities are very high.

Monopolization in this sector does not just happen by itself. Last month, when the microchip shortage was already glaringly evident, U.S. producer Intel announced it would outsource the production of its microchips ... to Taiwan’s TSMC.

The organization of production itself is bizarre and creates the shortages. All the same, industrial giants all around the world are making money.