Economy

It will take at least a year for chip production to return to normal: IESA chief

K V Kurmanath Hyderabad | Updated on September 01, 2021

Lead time shoots up as fabs work to rev up assembly lines

The Indian automobile companies, which are facing chip shortage after the semiconductor foundries lowered capacities during the pandemic, will have to wait till at least a year before they get back to the normal lead times of 2-4 weeks.

Owing to the chipset shortage, top car manufacturers have indicated a cut in production levels.

Factories shut

“It is not easy for the fabs to open the foundries overnight or whenever we want. It is a process where a lot of gases and chemicals are involved. You are talking about production of things that is one-hundredth of your hair strand,” K Krishna Moorthy, President and Chief Executive Officer of India Electronics and Semiconductor Association (IESA), said.

With lockdowns unsettling economies and supply chains in early 2020, almost all the top semiconductor companies lowered their capacities by shutting down some of the foundries, forecasting a huge drop in the demand.

“However, the world soon realised that it had to live with the challenge and began to work from home. This triggered a huge demand for consumer electronics,” he said.

With whatever capacities they had, fabs focused all their energies on meeting the demand for chips for phones, computers, laptops and all other consumer electronics devices, that witnessed a sharp increase in demand.

There was also an increase in the demand for automobiles, industrial systems and other sectors where chips play a crucial role. This required a full-fledged capacity utilisation of foundries. But the foundries are not ready to meet the demand as they are busy serving the consumer electronics industry.

“It is not easy to quickly revive the production lines. It will take at least 18-24 months for the semiconductor industry to get back to the production levels that would give you the normal lead time (in supplies of chips to the car makers) of 2-4 weeks,” he said.

“As they begin to increase the capacities, the situation will slowly improve. The lead times, which are currently four quarters, will gradually come down to three, two quarters and finally to the pre-pandemic level,” he said.

But the challenge is, they would have saddled with a backlog of the demand of almost one year.

Key role

Unlike in the past, chips have started playing a key role in a motor vehicle. “Forget about cars, even two-wheelers need electronics. In the case of electric or hybrid vehicles, the problem is much more, with the total of cost of electronics and battery would get past the half of the vehicle value,” he said.

The IESA President said the situation is getting better for the industry globally and in the country. “Samsung has announced an investment of $100 billion, while the US government and European consortium too have announced investments to the tune of $30 billion each,” he said.

“The Indian government is serious in efforts in strengthening the semiconductor industry. The Government is expected to issue RFPs (Request for Proposals) for setting up semiconductor units shortly,” he said.

Published on August 31, 2021

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