Some of the largest tech companies have decided to respond to the semiconductor shortage by designing their chips internally. Tech analysts and business people have spoken about the semiconductor shortage and how the coronavirus pandemic has severely drained the resources required to make the chips and parts needed for everyday electronic devices.
In recent months, several markets have seen detrimental results across the board. For example, the automotive industry reported that U.S. manufacturers forecast producing 1.5 million to 5 million fewer cars in 2021. Apple anticipates that the shortage will delay iPhone production and leave a long-term impact on iPad and iMac sales.
While it is unclear when this shortage will resolve itself, some technology companies have begun to adjust their specific semiconductor needs. For example, Apple will now rely on its M1 processor for iMacs and iPads instead of Intel’s processors. Tesla said it is building its own “Dojo” chip to help train AI networks in data centers. Chinese tech company Baidu launched an AI chip in August 2021, which will help boost the computing power of its various initiatives. Amazon and Google are also making their initiatives to design CPUs and networking chips for their particular devices and services, which will help fulfill their specific desires.
For most of these companies, these decisions to go independent are solely on the design side. The Big Tech firms will still rely on production foundries such as TSMC and Samsung to do the hard work. Designing chips internally would allow companies to specialize their design needs and optimize the machines for their specific functions.
However, analysts do not believe it will fix the semiconductor shortage. “The decision from companies to design their own chips and the semiconductor shortage has little to do with each other in the short term,” said Duncan Stewart, director of TMT Research at Deloitte. “However, there could be some significant changes in market demands in the long term.”
Stewart told the Washington Examiner that semiconductor production foundries were concentrated primarily in Taiwan and South Korea for a long time. However, recent events have put significant stress on the foundries. In Taiwan, TSMC was hindered by the country’s worst drought in 50 years, which has required the company to import water from other parts of Taiwan to maintain production. While TSMC claims this has not affected production, it is illustrative of the semiconductor market’s sensitivity to events it cannot control, from pandemics to droughts.
Now companies are looking to expand outside of those two countries. “There’s a geopolitical element here,” argued Ben Blaney, the vice president of business consulting at pricing firm Vendavo. “We know that China is investing heavily in fabrication capability, and we know the EU is providing ‘incentives’ for manufacturing in the eurozone.” The White House has also made significant pushes toward investing in semiconductor foundries, with Congress and the Biden administration investing billions into partnerships with Intel and others to build local foundries.
“The chip business has long been cyclical,” Blaney argued. “In which case, one could argue that TSMC’s dominance may be relatively short-lived and regulators should let the ‘invisible hand’ do its thing. The counter to that is that demand will surely increase, if not quite exponentially, then certainly at quite a clip, as so many more humdrum items require chips, such as domestic refrigerators.”
If this demand does increase, analysts expect that semiconductor foundries will seek out whichever countries offer the most incentives and build their newly established semiconductor factories in their territories.
