The major chip shortage that began in the fourth quarter of 2020 became even more intense in 2021. Not only were automotive chips in shortage; all chips began to be in shortage, and the entire semiconductor industry was affected.

Actually, since the chip was invented, the entire semiconductor industry has operated for more than half a century, and over this more than half a century, it has operated fairly well, and this kind of major shortage had not occurred. So what exactly caused the semiconductor industry to be so vulnerable and led to the 2021 chip shortage?

In fact, when we analyze the reasons behind it, there are exactly three key factors, and they happened to come together; if these three factors had not come together, the shortage would not have been so severe. The first factor is the pandemic. We know that the pandemic in 2020, first, caused the production capacity of manufacturing factories worldwide to decrease somewhat, and workers did not return to work on schedule. This was not the main reason. The pandemic caused everyone to work and study from home, so televisions, computers, cameras, cloud computing, remote technologies and other fields developed, and chip orders in these fields increased.

The automotive industry was hit, so corresponding orders for automotive chips decreased, and these newly increased orders squeezed out automotive chip orders. Unexpectedly, starting in the second half of 2020, the automotive industry recovered, and it was a frightening recovery.

This led to insufficient automotive chips, and manufacturers began to place additional orders with foundries, but the orders took time and could not be solved in a short period, so the wave of automotive chip shortages began...

In addition, while the pandemic began to cause automotive chip tightness, another thing happened, as everyone knows: the chip ban against Huawei was tightened.

This, first, caused Huawei to stockpile chips and step up additional orders to foundries, producing as much as could be produced and occupying all the capacity. Not only that, it also caused Xiaomi, OPPO, VIVO, etc. to step up stockpiling: first, they wanted to expand production capacity to seize the market that Huawei would vacate; second, they wanted to make reserves, fearing that they too would be hit by a ban.

As a result, market demand continued to increase greatly, and the already tight capacity became even tighter; moreover, other manufacturers followed suit and stockpiled, causing an increase of more than 20% to 30% over normal demand, which caused capacity to be tight across the board—not only automotive chips, but consumer-grade chips were tight across the board.

Behind these two matters, there is another factor: foundries have gradually adjusted capacity from 8-inch wafers to 12-inch wafers, because 8-inch wafers are mainly used for 28nm and above processes, while 12-inch wafers are mainly used for 14nm and below processes.

For foundries, 12-inch wafers have higher profitability and more advanced technology. But this led to tight capacity for 8-inch wafers, and in addition, many automotive chips and consumer electronics are based on 8-inch wafers.

After these three key factors came together, they caused a major global chip shortage, from automotive chips to the entire industry chain being in shortage across the board. This situation will take about a year to ease, because chips have quite strict processes; manufacturers cannot adjust at will, and safety and stability are the first requirements.