It is reported that there is panic stocking in China, and the price of chips has increased by 20 times-EEWORLD

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According to Taiwan media reports, data from the General Administration of Customs of China showed that the mainland imported semiconductors worth 35.9 billion US dollars in March, a record high for a single month. The market said that the semiconductor industry has already seen panic stocking, and some mainland companies are purchasing chips at a price difference of up to 20 times the global market. Since the safety inventory has hit the bottom, even if the current purchases are made regardless of the price and orders are placed continuously, it is impossible to ensure the required quantity.

According to a report by Yicai Global, for example, the price of some microcontroller units (MCUs) was $8 last year, but has now soared to $50, more than six times that of last year. The current market is generally seeing an eight to ten-fold increase in prices, and all chip companies are facing great pressure. Especially for small and medium-sized chip manufacturers, companies that hire experts to design chips have had their orders cut by overseas foundries because they have no bargaining power.

Gu Wenjun, chief analyst at Strategy Analytics, said that recently a mainland design company had its long-term overseas foundry cut its orders, and had no choice but to use an extremely high price to secure 300 pieces. Some overseas foundries use auctions to sell production capacity, which is actually for external use, forcing mainland design companies to buy production capacity at high prices, but this is not the case for other design companies.

The phenomenon of panic stockpiling is not only happening among chip companies, but also in downstream terminal products, including mobile phone manufacturers.

Xu Qi, president of realme China, said that previously the mobile phone supply chain's inventory was generally enough for about eight months of use, but the company has prepared a whole year's supply in advance.

IDC analyst Wang Xi pointed out that the supply fluctuations of advanced process chips are clearly affecting the products and procurement plans of mobile phone manufacturers.

Taiwan's drought could exacerbate chip shortage

According to the Wall Street Journal, Taiwan, which has two-thirds of the world's semiconductor manufacturing capacity, is suffering from the worst drought in half a century. The drought has increased the pressure on Taiwan at a time when the world is facing the worst chip shortage in recent history.

Semiconductor production requires a lot of water, and the drought has so far spared semiconductor producers much of their impact because the Taiwanese government has made water exceptions for them. But semiconductor companies are starting to make some adjustments, and officials have warned that the water shortage could worsen without enough rain.

Taiwan’s semiconductor chip factories account for 65% of global revenue, according to research firm Trendforce. Much of Taiwan’s capacity comes from Taiwan Semiconductor Manufacturing Co., 2330.TW, or TSM, the world’s largest contract chip maker.

“Taiwan is the center of gravity for semiconductor production,” said Syed Alam, global leader of Accenture’s semiconductor consulting research practice. “The pressure on this is already as high as it can be.”

Taiwan gets most of its water from seasonal typhoons, but a lack of typhoons last year strained supplies, prompting the government to start rationing water for more than a million businesses and residents.

A series of natural disasters have severely impacted the global chip supply, while at the same time, demand for semiconductor chips from global automakers and electronics companies has surged, making the supply and demand situation worse.

Earlier this year, Samsung Electronics Co. was forced to temporarily shut down two chip plants in Austin after severe weather hit Texas. Automotive chip maker Renesas Electronics Corp. was also forced to halt production at its Japanese plants after an earthquake in February and a fire in March, and executives said it would take months to resume production.

Most of Taiwan's chip manufacturing plants are located in three science and technology and industrial parks. Currently, these three parks must control water consumption, but the water supply has not been cut off so far, so there has been no suspension of production. But some companies are still feeling the pressure.

Micron Technology Inc., a U.S. chip maker with factories in Taichung and Taoyuan, said obtaining alternative water sources and accelerating water conservation will increase production costs after water supply was reduced at one of its memory chip plants in Taiwan.

Separately, TSMC and United Microelectronics Co. , both based in Hsinchu, Taiwan, have arranged for trucks to increase water supplies. TSMC said it is also in talks with some companies to use groundwater from construction sites.

TSMC CEO CC Wei said on Thursday that while Taiwan's water supply is currently tight, the company does not expect this to have any material impact on operations.

Taiwanese officials and academics have warned that water shortages could become a more persistent problem in the coming years due to climate change, a worrying development for the global semiconductor industry given the concentration of chip production in Taiwan.

More than half of Taiwan’s water supply comes from typhoons, said Liu Shuo-an, a professor at the Center for Space and Remote Sensing Research at National Central University in Taoyuan, Taiwan. As global temperatures rise, typhoons over the Pacific will become stronger but also more likely to change course before reaching Taiwan, he said.

Taiwan established a drought relief agency in October last year and has been working to ease water shortages by dredging reservoirs, desalinating seawater and bringing water from around the island.

This month, the Taiwanese government suspended water supply to parts of the island two days a week, affecting residents and businesses such as restaurants, hair salons and car washes. Taiwan's Ministry of Health and Welfare encouraged people to conserve water during the epidemic, while still washing their hands.

During the production process, semiconductor factories require large amounts of water to clean wafer substrates, etch patterns, polish layers, and rinse parts.

According to TSMC's latest corporate social responsibility report released last June, the company's three science and industrial parks in Taiwan used 156,000 tons of water per day in 2019. That's enough water to fill more than 60 Olympic-size swimming pools. According to a UMC report, the company's facilities in Taiwan used 31,500 tons of water per day in 2019.

Given the uncertainty in water supply, TSMC aims to reduce its specific water use by 30% by 2030 compared to 2010. In 2019, the company's specific water use was 5.2% lower than in 2010. TSMC said it saved more than 3 million tons of water in 2019 through water conservation and water reuse.

Amid water shortages, water allocation has become a point of contention in Taiwan, especially for farmers, who have had to give up irrigation while industrial zones continue to operate.

Jennifer Nien, director of the nonprofit Taiwan Water Resources Conservation Union, said that while the government has provided subsidies this year for farmers facing water shortages, many are worried that prolonged water shortages will leave their land uncultivated.

Chen Liyu said the industrial sector is like a bottomless pit, always in need of water. She said, "We know the Taiwanese government is seriously looking for more water, but we are also worried."

Semiconductor companies are a vital part of Taiwan's economy and diplomatic relations, especially as supplies are already scarce.

TSMC accounted for about 4.5% of Taiwan's GDP in 2018. Chip sales have accounted for an average of 64% of Taiwan's export growth over the past five years, according to research firm TS Lombard. The German government has approached Taiwan in hopes of securing a steady supply of chips for German automakers.

Terry Tsao, global marketing chief and Taiwan president of the Semiconductor Industry Association (SEMI), an industry group, said the importance of semiconductors is now like a consensus in Taiwan, and everyone understands it. He said everyone will ensure that there is enough water to maintain the competitiveness of the semiconductor manufacturing industry.

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