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Why Shortages of a $1 Chip Sparked Crisis in the Global Economy

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(Bloomberg) — To understand why the $450 billion semiconductor industry has lurched into crisis, a helpful place to start is a one-dollar part called a display driver.

Hundreds of different kinds of chips make up the global silicon industry, with the flashiest ones from Qualcomm Inc. and Intel Corp. going for $100 apiece to more than $1,000. Those run powerful computers or the shiny smartphone in your pocket. A display driver is mundane by contrast: Its sole purpose is to convey basic instructions for illuminating the screen on your phone, monitor or navigation system.

The trouble for the chip industry — and increasingly companies beyond tech, like automakers — is that there aren’t enough display drivers to go around. Firms that make them can’t keep up with surging demand so prices are spiking. That’s contributing to short supplies and increasing costs for liquid crystal display panels, essential components for making televisions and laptops, as well as cars, airplanes and high-end refrigerators.

“It’s not like you can just make do. If you have everything else, but you don’t have a display driver, then you can’t build your product,” says Stacy Rasgon, who covers the semiconductor industry for Sanford C. Bernstein.

Now the crunch in a handful of such seemingly insignificant parts — power management chips are also in short supply, for example — is cascading through the global economy. Automakers like Ford Motor Co., Nissan Motor Co. and Volkswagen AG have already scaled back production, leading to estimates for more than $60 billion in lost revenue for the industry this year.

The situation is likely to get worse before it gets better. A rare winter storm in Texas knocked out swaths of U.S. production. A fire at a key Japan factory will shut the facility for a month. Samsung Electronics Co. warned of a “serious imbalance” in the industry, while Taiwan Semiconductor Manufacturing Co. said it can’t keep up with demand despite running factories at more than 100% of capacity.

“I have never seen anything like this in the past 20 years since our company’s founding,” said Jordan Wu, co-founder and chief executive officer of Himax Technologies Co., a leading supplier of display drivers. “Every application is short of chips.”

The chip crunch was born out of an understandable miscalculation as the coronavirus pandemic hit last year. When Covid-19 began spreading from China to the rest of the world, many companies anticipated people would cut back as times got tough.

“I slashed all my projections. I was using the financial crisis as the model,” says Rasgon. “But demand was just really resilient.”

People stuck at home started buying technology — and then kept buying. They purchased better computers and bigger displays so they could work remotely. They got their kids new laptops for distance learning. They scooped up 4K televisions, game consoles, milk frothers, air fryers and immersion blenders to make life under quarantine more palatable. The pandemic turned into an extended Black Friday onlinepalooza.

Automakers were blindsided. They shut factories during the lockdown while demand crashed because no one could get to showrooms. They told suppliers to stop shipping components, including the chips that are increasingly essential for cars.

Then late last year, demand began to pick up. People wanted to get out and they didn’t want to use public transportation. Automakers reopened factories and went hat in hand to chipmakers like TSMC and Samsung. Their response? Back of the line. They couldn’t make chips fast enough for their still-loyal customers.

Himax’s Jordan Wu is in the middle of the tech industry’s tempest. On a recent March morning, the bespectacled 61-year-old agreed to meet at his Taipei office to discuss the shortages and why they are so challenging to resolve. He was eager enough to talk that interview was scheduled for the same morning Bloomberg News requested it, with two of his staff joining in person and another two dialing in by phone. He wore a mask throughout the interview, speaking carefully and articulately.

Wu founded Himax in 2001 with his brother Biing-seng, now the company’s chairman. They started out making driver ICs (for integrated circuits), as they’re known in the industry, for notebook computers and monitors. They went public in 2006 and grew with the computer industry, expanding into smartphones, tablets and touch screens. Their chips are now used in scores of products, from phones and televisions to automobiles.

Wu explained that he can’t make more display drivers by pushing his workforce harder. Himax designs display drivers and then has them manufactured at a foundry like TSMC or United Microelectronics Corp. His chips are made on what’s artfully called “mature node” technology, equipment at least a couple generations behind the cutting-edge processes. These machines etch lines in silicon at a width of 16 nanometers or more, compared with 5 nanometers for high-end chips.​

​The bottleneck is that these mature chip-making lines are running flat out. Wu says the pandemic drove such strong demand that manufacturing partners can’t make enough display drivers for all the panels that go into computers, televisions and game consoles — plus all the new products that companies are putting screens into, like refrigerators, smart thermometers and car-entertainment systems.

There’s been a particular squeeze in driver ICs for automotive systems because they’re usually made on 8-inch silicon wafers, rather than more advanced 12-inch wafers. Sumco Corp., one of the leading wafer manufacturers, reported production capacity for 8-inch equipment lines was about 5,000 wafers a month in 2020 — less than it was in 2017.

No one is building more mature-node manufacturing lines because it doesn’t make economic sense. The existing lines are fully depreciated and fine-tuned for almost perfect yields, meaning basic display drivers can be made for less than a dollar and more advanced versions for not much more. Buying new equipment and starting off at lower yields would mean much higher expenses.

“Building new capacity is too expensive,” Wu says. Peers like Novatek Microelectronics Corp., also based in Taiwan, have the same constraints.

That shortfall is showing up in a spike in LCD prices. A 50-inch LCD panel for televisions doubled in price between January 2020 and this March. Bloomberg Intelligence’s Matthew Kanterman projects that LCD prices will keep rising at least until the third quarter. There is a “a dire shortage” of display driver chips, he said.

Aggravating the situation is a lack of glass. Major glass makers reported accidents at their production sites, including a blackout at a Nippon Electric Glass Co.’s factory in December and an explosion at AGC Fine Techno Korea’s factory in January. Production will likely remain constrained at least through summer this year, display consultancy DSCC Co-founder Yoshio Tamura said.

On April 1, I-O Data Device Inc., a major Japanese computer peripherals maker, raised the price of their 26 LCD monitors by 5,000 yen on average, the biggest increase since they began selling the monitors two decades ago. A spokeswoman said the company can’t make any profit without the increases due to rising costs for components.

All of this has been a boon to Himax’s business. Sales are surging and its stock price has tripled since November.

But the CEO isn’t celebrating. His whole business is built around giving customers what they want, so his inability to meet their requests at such a critical time is frustrating. He doesn’t expect the crunch, especially for automotive components, to end any time soon.

“We have not reached a position where we can see the light at the end of tunnel yet,” Wu said.

©2021 Bloomberg L.P.

Source:- BNN

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Canada’s budget to include pandemic and childcare supports, luxury tax

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By Steve Scherer

OTTAWA (Reuters) – Canada will present a budget on Monday with billions of dollars for pandemic recovery measures as COVID-19 infections skyrocket, C$2 billion ($1.6 billion) toward national childcare, and new taxes on luxury goods.

Liberal Prime Minister Justin Trudeau’s first budget in two years will also set aside C$12 billion ($9.6 billion) to extend wage and rent subsidy programs to the autumn, the Toronto Star reported on Sunday.

Finance Minister Chrystia Freeland is due to present the budget at about 4 p.m. (2000 GMT).

The document promises in excess of C$2 billion as a “starting point” for a national childcare program, the Canadian Broadcasting Corp said, adding that the 2020-2021 federal deficit had come in under C$400 billion.

In November, the government forecast a deficit of C$381.6 billion, which would be its highest level since World War Two. [https://tmsnrt.rs/3wSJPcm]

The budget will also include a luxury tax effective from 2022 on new cars and private aircraft valued at more than C$100,000 ($79,970), and boats worth over C$250,000, government sources familiar with the document told Reuters.

There will be a sales tax for online platforms and e-commerce warehouses from July, and a digital services tax for Web giants like Alphabet Inc’s Google and Facebook Inc from 2022.

Freeland promised in November up to C$100 billion in stimulus over three years to “jump-start” an economic recovery during what is likely to be an election year, and the government so far not backed away from that commitment.

Environment Minister Jonathan Wilkinson, speaking to the CBC, confirmed that the budget would be “ambitious” and that the government would “invest for jobs and growth to rebuild this economy,” although he added there would be “fiscal guardrails” to put spending on a “sustainable track.”

Amid a spiking third wave of infections, Ontario, Canada‘s most-populous province, announced new public health restrictions on Friday, including closing the province’s borders to non-essential domestic travel.

Canada has been ramping up its vaccination campaign but still has a smaller percentage of its population inoculated than dozens of other countries, including the United States and Britain.

($1 = 1.2514 Canadian dollars)

 

(Reporting by Steve Scherer; Editing by Nick Zieminski and Peter Cooney)

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TSX extends gains as gold prices rise, set to rise for third week

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(Reuters) -Canada’s main stock index extended its rise on Friday after hitting a record high a day earlier as gold prices advanced, and was set to gain for a third straight week.

* At 9:40 a.m. ET (13:38 GMT), the Toronto Stock Exchange‘s S&P/TSX composite index was up 24.24 points, or 0.1%, at 19,326.16.

* The Canadian economy is likely to grow at a slower pace in this quarter and the next than previously expected, but tighter lockdown restrictions from another wave of coronavirus were unlikely to derail the economic recovery, a Reuters poll showed.

* The energy sector climbed 0.6% even as U.S. crude prices slipped 0.1% a barrel. Brent crude added 0.1%. [O/R]

* The materials sector, which includes precious and base metals miners and fertilizer companies, added 0.3% as gold futures rose 0.7% to $1,777.9 an ounce. [GOL/] [MET/L]

* The financials sector gained 0.2%. The industrials sector rose 0.1%.

* On the TSX, 117 issues advanced, while 102 issues declined in a 1.15-to-1 ratio favoring gainers, with 14.26 million shares traded.

* The largest percentage gainers on the TSX were Cascades Inc, which jumped 4.2%, and Ballard Power Systems, which rose 2.9%.

* Lghtspeed POS fell 5.6%, the most on the TSX, while the second biggest decliner was goeasy, down 4.9%.

* The most heavily traded shares by volume were Zenabis Global Inc, Bombardier and Royal Bank of Canada.

* The TSX posted 23 new 52-week highs and no new low.

* Across Canadian issues, there were 160 new 52-week highs and 12 new lows, with total volume of 29.68 million shares.

(Reporting by Shashank Nayar in Bengaluru;Editing by Vinay Dwivedi)

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Canadian economy likely to slow, but COVID-19 threat to growth low

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By Indradip Ghosh and Mumal Rathore

BENGALURU (Reuters) – The Canadian economy is likely to grow at a slower pace this quarter and next than previously expected, but tighter lockdown restrictions from another wave of coronavirus were unlikely to derail the economic recovery, a Reuters poll showed.

Restrictions have been renewed in some provinces as they struggle with a rapid spread of the virus, which has already infected over 1 million people in the country.

After an expected 5.6% growth in the first quarter, the economy was forecast to expand 3.6% this quarter, a sharp downgrade from 6.7% predicted in January.

It was then forecast to grow 6.0% in the third quarter and 5.5% in the fourth, compared with 6.8% and 5.0% forecast previously.

But over three-quarters of economists, or 16 of 21, in response to an additional question said tighter curbs from another COVID-19 wave were unlikely to derail the economic recovery, including one respondent who said “very unlikely”.

Canada is undergoing a third wave of the virus and while case loads are accelerating, the resiliency the economy has shown in the face of the second wave suggests it can ride out the third wave as well, without considerable economic consequences,” said Sri Thanabalasingam, senior economist at TD Economics.

The April 12-16 poll of 40 economists forecast the commodity-driven economy would grow on average 5.8% this year, the fastest pace of annual expansion in 13 years and the highest prediction since polling began in April 2019.

For next year, the consensus was upgraded to 4.0% from 3.6% growth predicted in January.

What is likely to help is the promise of a fiscal package by Prime Minister Justin Trudeau late last year, which the Canadian government was expected to outline, at least partly, in its first federal budget in two years, on April 19.

When asked what impact that would have, over half, or 11 of 20 economists, said it would boost the economy significantly. Eight respondents said it would have little impact and one said it would have an adverse impact.

“The economic impact of the federal government’s promised C$100 billion fiscal stimulus will depend most importantly on its make up,” said Tony Stillo, director of Canada economics at Oxford Economics.

“A stimulus package that enhances the economy’s potential could provide a material boost to growth without stoking price pressures.”

All but two of 17 economists expected the Bank of Canada to announce a taper to the amount of its weekly bond purchases at its April 21 meeting. The consensus showed interest rates left unchanged at 0.25% until 2023 at least.

“The BoC is set to cut the pace of its asset purchases next week,” noted Stephen Brown, senior Canada economist at Capital Economics.

“While it will also upgrade its GDP forecasts, we expect it to make an offsetting change to its estimate of the economy’s potential, implying the Bank will not materially alter its assessment of when interest rates need to rise.”

 

 

(Reporting and polling by Indradip Ghosh and Mumal Rathore; editing by Rahul Karunakar, Larry King)

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