Munich STMicroelectronics’ order books are full to the brim. “We are sold out for 2022 and the first half of 2023,” said the head of the French-Italian chip manufacturer, Jean Marc Chery, the Handelsblatt. In view of the huge demand, the company will invest more next year, the Frenchman announced.
How much money the semiconductor manufacturer will take has not yet been decided, according to Chery. But one thing is clear: It’s about huge sums of money. This year, STMicroelectronics is investing $ 2.1 billion (1.8 billion euros) in new plants and machines. This corresponds to around 17 percent of the expected sales.
The bad news for the troubled customers: Chery cannot expand its capacities as quickly as it would be necessary in view of the current semiconductor shortage. Because the big chip machine manufacturers such as ASML or Applied Materials are already fully booked for the next year, the manager warned.
Like STMicroelectronics, the Munich rival Infineon has decided to significantly expand its production in the next few months. CEO Reinhard Ploss wants to spend 2.4 billion euros on machines and factories in the new fiscal year that has just begun; that’s 800 million more than in the fiscal year ended September 30th. It corresponds to around a fifth of the expected sales and is well above the target of 13 percent.
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But even at the Munich Dax group, the management assumes that the bottlenecks will continue for longer. Ploss recently warned that large-scale additional capacities would not be expected until 2023.
This is a catastrophe for buyers, because the shortage of chips has been slowing down European industry and, in particular, vehicle manufacturers for months. As a result, Daimler had to stop production several times in the third quarter and delivered almost a third fewer cars from the Mercedes-Benz brand to customers than a year earlier.
In the VW Group, deliveries worldwide fell by a quarter. The production lines stood still several times because the electronic components were missing. In Germany, many employees had to go on short-time work, and the main plant in Wolfsburg is also underutilized due to the semiconductor crisis. And Opel parent Stellantis said it was unable to build around 600,000 planned cars in the past quarter. This has consequences above all for the Eisenach site, where employees are on short-time work until the end of the year.
The components are currently being torn out of the hands of chip companies, by the automotive industry as well as by computer manufacturers or network equipment providers for the new 5G mobile communications standard. The industry association WSTS predicts a global increase in sales of around a quarter for the current year. Next year it should go up again by ten percent. Before Corona, growth rates of around five percent were common. The digitization surge triggered by the pandemic is now ensuring unexpectedly strong business.
The chip bottlenecks will be exacerbated
Even the European second-tier chip companies are no longer able to keep up with the delivery. Sales of the contract manufacturer X-Fab shot in the third quarter by 76 percent in the amount to 169 million dollars. “X-Fab’s factories are running at high capacity, so the allocation of capacity to customers had to be continued in the third quarter,” said the Belgian company. X-Fab operates factories in Erfurt and Dresden, among others, and employs 4,000 people.
The bottlenecks were recently exacerbated by the lockdown in Malaysia. For example, STMicroelectronics had to temporarily close its semiconductor packaging factory in the Southeast Asian country completely. As a result, ST lost $ 170 million in sales, reports Chery. That hit the auto division in particular – and of course also its customers, i.e. the vehicle manufacturers.
Infineon had already reported massive failures in the summer due to factory closures in Malaysia that lasted for weeks. In the country, many large chip manufacturers have their semiconductors processed further because this is labor-intensive.
But it is not only stalling in the Far East. Recently, manufacturers in Saxony have had problems too. “In September, X-Fab was affected by a power failure at its location in Dresden. The resulting delivery delays will have an impact on sales in the fourth quarter, ”said the company. The Infineon plant on the Elbe was also cut off from electricity for a short time. The effects have so far remained unclear. The DAX group will not present its quarterly figures until mid-November.
Chip companies such as STMicroelectronics and Infineon have outsourced part of their production to contract manufacturers such as TSMC, Samsung, Globalfoundries and X-Fab. At STMicroelectronics, that’s a quarter of the total capacity. These so-called foundries are also not able to produce as much as would be necessary for a long time. In the second half of the year, the quantities even decreased, explained Chery: “That is not exactly pleasant.”
STMicroelectronics allocates the chips as needed
Because it is highly complex to distribute the scarce components among your customers. The consequences of not delivering are always taken into account.
There is no improvement in sight for contract manufacturers. “2022 will be a difficult year in which we cannot deliver everything our customers want,” said Tom Caulfield, CEO of Globalfoundries (GF) last week. The American company operates a large plant in Dresden, where it also manufactures for the automotive industry. However, the group will build up further capacities in the next few years. GF went public last week to finance new plants, among other things. The Californians are currently building two new factories in America and Singapore.
The American electric car manufacturer is one of STMicroelectronics’ best-known customers.
(Photo: Bloomberg)
STMicroelectronics is currently massively expanding its locations in Agrate, Italy, in Catania on Sicily and in Crolles in France. “Between 2020 and 2025 we will double production,” says Chery. The manufacture of silicon carbide chips is particularly important. These semiconductors are very energy efficient, one of the most important customers is Tesla with its electric cars and charging stations.
The scarce capacities have one advantage for chip manufacturers. You can raise the prices. ST sales rose 20 percent to $ 3.2 billion in the third quarter. The bottom line was that at $ 474 million, almost twice as much was left over as in the same period in 2020. Overall, Chery expects an increase in sales of around 23 percent this year.
No one in the chip industry is currently afraid of overcapacities in view of the high level of investment. There are “no signs that the market is turning,” said Helmut Gassel, Infineon’s Chief Sales Officer, recently.
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