Chip capacity tight; No DSL shortages

"Right now our capacity is all taken up, and we don't have enough," Jiang Shangzhou of SMIC tells Reuters. Ulrich Schumacher at Grace Semi has been operating at 100 percent capacityLantiq_logo since September. Mark Lapedus in EE Times writes "Not long ago, chip makers could not buy an order amid the terrible downturn. Now, amid the upturn, there are widespread reports of component shortages in the supply chain." Memory chip prices are actually going up, with Samsung doing particularly well.

My checks across the industry suggest things are not nearly that intense. Don't panic. Everyone has to carefully plan, but it's rare that an order that ordinarily would be filled in 30 days is delayed. Demand for DSL chips is good but not enough to seriously strain supply. Chip demand is ultimately driven by sales of the product that include chips; the world economy simply hasn't expanded that much. It's far more likely the industry situation was caused by companies in previous quarters conserving cash by keeping inventories low and now catching up. John Pitzer of Credit Suisse is strongly optimistic about semiconductor stocks, but also notes "there is double ordering in the current environment." Digitimes reports wafer prices are up, but we're talking perhaps a dime a chip, not huge price increases that need to be hedged. broadcom_logo

Several times I've watched forecasts of chip shortages become self-fulfilling prophecies. Companies double and triple order "just to be safe." The splash of orders creates a real bottleneck and then chaos when things catch up. I call it the "Johnny Carson" problem. The TV host made a joke about toilet paper shortages on the east coast of the U.S. The next day, everybody bought all they could and there (temporarily) was a real shortage.

DSL net new subscribers are down, but most of the chip demand comes from customers switching to a new carrier and getting a new modem. Wherever competition is strong, modem chip sales are likely doing well. In addition, several very large networks, starting with AT&T and BT, are upgrading from ADSL to VDSL Written by Dave Burstein


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