Bloomberg: Chips costing one dollar are holding the entire industry chain back

Currently, the total output value of global semiconductors can reach 450 billion US dollars, but the entire industrial chain can be strangled by a chip with a cost price of one dollar.

Qualcomm and Intel are the two world's leading chip manufacturers. Whether in PC or mobile phone, these two companies can make chips worth $100-1000 with excellent technology. In contrast, display driver chips look plain and simple, and their functions are relatively simple - transmitting instructions to mobile phone screens, monitors or car navigation systems. TVs, laptops, cars and advanced refrigerators all need such chips.

“You can’t assemble the whole product without this little chip that drives the display,” said Stacy Rasgon, an analyst at Sanford C. Bernstein.

Bloomberg News interviewed Wu Bingsheng, co-founder and CEO of Himax Technologies Co., which makes display driver chips. He said: "I have never encountered such a thing in the 20 years since the company was founded."

The chips designed by his company need to be manufactured by TSMC or UMC, using the relatively less advanced but more mature 16nm node process.

The price changes of display driver chips in recent period. The black one is Himax and the red one is Novatek.

Wu pointed out that the COVID-19 epidemic has stimulated demand for electronic consumer products, driving the production capacity of display chips, which are often made from 8-inch rather than 12-inch silicon wafers. Sumco Corp., one of the leading wafer manufacturers, released a report saying that the monthly production capacity of 8-inch equipment production lines in 2020 was about 5,000 wafers, less than in 2017.

From the perspective of economic benefits, not many manufacturers are willing to build 8-inch production lines, because buying new equipment often only returns a lower rate of return, and can only be fine-tuned on the existing basis. The production cost of display driver chips is less than $1. Wu Bingsheng said: "The cost of building a new production line is too expensive."

2019-2021, price changes of various LCDs (Chart: Bloomberg)

Due to the shortage of display driver chips, the price of LCD monitors has soared. From January 2020 to March this year, the price of 50-inch TV LCD panels doubled. Matthew Kanterman of Bloomberg Intelligence expects the rising trend of LCD monitor prices to continue into the third quarter.

The shortage of glass components has further exacerbated the severity of the capacity shortage, mainly due to a power outage at the Nippon Electric Glass Co. factory in December and an explosion at the AGC Fine Techno South Korean factory in January this year.

Japanese computer peripherals maker IO Data Device Inc. on April 1 raised prices of its 26 LCD monitors by an average of 5,000 yen, the biggest increase in 20 years since it started selling monitors. A spokeswoman said the company would not be able to make any profit without the price hike due to rising component costs.

Still, the situation has been a boon for Himax's business, with sales surging and its shares tripling since November.