The Semiconductor Supply Shortage with Robert Quinn | 7investing
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The Semiconductor Supply Shortage with Robert Quinn

September 3, 2021 – By Simon Erickson

The world’s undergoing a serious chip shortage, and its having a negative impact on businesses everywhere.

Automakers like Toyota (NYSE: TM) are cutting their production forecasts by 40% based on the tightness of supply. Appliance makers like Whirlpool (NYSE: WHR) are claiming “the perfect storm” of supply issues have caused them to slash projections by around 10%. And Internet of Things providers like Synaptics (Nasdaq: SYNA) are bringing in customers and quite literally begging to fulfill their existing customer orders.

The extreme tightness of supply, coupled with the growing demand of high-performance chips, is serving as a catalyst of epic proportions. The semiconductor industry is undergoing one of the most significant expansion phases in decades. Intel (Nasdaq: INTC), Samsung, Taiwan Semiconductor (NYSE: TSM), and several other manufacturers are plowing tens of billions of dollars into expanding their chipmaking capacity.

What should investors make of all of this? Is this an opportunity to bank on a wave of upcoming new semiconductor business? Or is this simply too-much, too fast — in what’s already known as a highly cyclical industry?

To answer those questions, we’ve brought in a semiconductor expert. Robert Quinn has worked for decades in providing capital equipment to the semiconductor industry. He is now a high-performance contributor to LinkedIn, where he posts four times per days and his articles have been read nearly 2 million times year-to-date.

In this exclusive interview, 7investing CEO Simon Erickson and Robert describe why Intel is so ambitiously expanding its chipmaking capacity within the United States and what its new contract with the Department of Defense could mean for its business. Robert also explains why Samsung might be  building a new fab in Austin, what Taiwan Semi’s price hike will mean for consumer electronics, and how much longer investors should expect the supply shortage to last.

The two also discuss several new chip designs and process technology improvements, such as the RISC-V open-source architecture, single nanometer nodes, FPGAs, and quantum computing. Robert also shares his thoughts about wafer fabrication equipment manufacturers, and why the status quo will greatly benefit Applied Materials (Nasdaq: AMAT).

Publicly-traded companies mentioned in this interview include AMD, Apple, Applied Materials, ASML, Cisco, Intel, Lam Research, Samsung, Taiwan Semiconductor, and Tesla. 7investing’s advisors or its guests may have positions in the companies mentioned.

Timestamps

00:00 – Overview and Introduction

01:19- Intel’s new contract with the DOD and American-based manufacturing

05:11 – Taiwan Semiconductor is raising prices

6:18  – Cryptocurrency Mining and the impact on pricing

16:53 – Recent process technology improvements

17:43 – Quantum Computing and the Internet of Things

23:20 – Is Samsung building a new fab in Austin?

Transcript

Simon Erickson  0:09

Hello everyone and welcome to this edition of our 7investing podcast. I’m 7investing founder and CEO Simon Erickson. There’s a lot going on these days in the semiconductor industry. And I brought in an expert on this space to give some viewpoints on what’s really going on. Robert Quinn is a semiconductor industry content provider, very actively involved on LinkedIn. And he joins me from Texas. Hey, Robert, good afternoon to you. How are you doing? And thanks for being on our 7investing podcast.

Robert Quinn  0:36

Good Simon, how you been doing?

Simon Erickson  0:37

It’s been great.

Robert Quinn  0:39

It’s been an eventful, super busy, little bit crazy. industry is is just exploding. It all seems it’s it’s been it’s been fun to watch.

Simon Erickson  0:50

It sure is. This is kind of where all the actions taking place. Maybe we start here at home with Intel (NASDAQ: INTC) kind of giving some news that it’s just won a big new contract with the Department of Defense. In fact, Intel has committed a lot of capital to vamping up its its US based capacity. Robert, any thoughts on what Intel’s doing here is? Is there a specific customers are looking at or why is Intel pledging 10s of billions of dollars to expand its fabs in Arizona and elsewhere?

Robert Quinn  1:19

Well, they’ve obviously gotten the the new government contracts that they’ve been working on getting for quite a while. And that’s that’s a big deal to them, because they do plan on expanding their fabs in Arizona. They’ve also looked into doing other things. So there’s rumors around the world saying that Intel would like to possibly buy some other companies like Global Foundries or something like that. You know, there are currently already existing fabs for that about people looking at other companies like Texas Instruments to Global Foundries, and looking looking at mergers there. But uh, yeah, Intel is definitely expanding, they are wanting to get into the new eUV. EUV is the next the next section of bringing the brain’s chips from seven nanometers to below. And, they’re definitely wanting to start a whole doing a whole lot more of that here in the United States.

Simon Erickson  2:22

And let’s talk about that a little bit. Cuz that’s actually an important deal, right? Seven nanometers and below. We’ve seen Intel kind of struggle with process technologies in last couple of years. But it seems like they’re revamping those efforts. Of course, smaller nanometer nodes, means higher performance chips. Is is Intel using this for its own internal processors, or is it looking to go out and get it foundry division more involved in making chips for other people.

Robert Quinn  2:46

But from the looks of what they’re wanting to do with the DoD, that tells me right there that they’re wanting to expand the foundry for sure. The Foundry chips that they’re also looking at the foundry chips that they’ve contracted with a DoD, I believe wouldn’t involve eUV. But the, they are looking to expand that with for their own products and other foundry products in the future. They’ve they have tried, they have failed in the past. And they’ve they’ve had some issues trying to bring that the technology to the to the next level here in the United States and they are currently outsourcing a lot of that to TSMC in Taiwan. And so that’s a it was a it was sad to see until not be able to keep up with that race. But I think they will come back around and they will get into the eUV and they will start developing more chips in the future. On that side, but it just may take some time. So

Simon Erickson  3:49

And on that note, I know that you have a background, you know, with a lot of the capital equipment that goes into semiconductor manufacturing. This isn’t something that happens immediately, right? We’re in the middle of kind of this, this chip crunch globally, there’s a supply shortage of semiconductors, but it’s not so easy. It’s just flipping a switch and all of a sudden that goes away. Right?

Robert Quinn  4:07

Right, right. I mean, the chip shortage, I’m afraid, I’m afraid that it’s here to stay for a while. The purchasing, to be able to purchase the equipment that is it takes to make these computer chips between from the from the ordering process to the install process and actually running production, full production, you’re looking at a year process. And so it does take a while to build these fabs and to bring these tools and to actually get them running to production. One of the ones Samsung went down they lost power. The hardest part was getting the tools running again to run full production. Because it’s not something like just flipping a switch, you just flip a switch for these machines. They take a long time to actually purge out all the particles and to start making processes, so running the process at a capacity to where they’re, they’re at full production.

Simon Erickson  5:11

Yeah, that makes a lot of sense. You had mentioned Taiwan Semiconductor (NASDAQ: TSM), of course, the largest manufacturer for at least for foundry of making other people’s chips. Speaking of a shortage, Taiwan Semi just announced that they’re going to be increasing prices up to 20% for a lot of the contracts that they have for production out there. How is this going to impact you know, smartphones and consumer electronics? Are we going to see prices increasing just because there’s so much demand for chips that the prices of those are going to be going up?

Robert Quinn  5:41

I think it does, I think it I think it has to be passed to the consumer, eventually, and is just now starting with TSMC saying that they’re going to raise their prices, I believe, if that happens to other companies as well. They all raised their prices and that eventually gets passed down to the consumer. But there’s there’s other things such as how that affects other markets as well. I’m kind of following a little bit of the crypto market and I also see what happens. I see that possibly affecting the crypto market as well in the long run. So yeah.

Simon Erickson  6:18

Can you double click on that one, Robert, what would be the impact of fewer chips available out there to cryptocurrency pricing?

Robert Quinn  6:25

Well, there’s currently a big shortage of chips and if we’re not getting more more chips, that means less miners, people mining people with with less chips and less with the increase of prices. They could be possibly less miners, people mining the cryptocurrency. And then that could eventually turn into definitely an increase in crypto prices. And I think, we’ll see.

Simon Erickson  6:55

You know, mentioning the miners, it’s really interesting, too, because you said everybody was eUV earlier, right sub seven nanometre nodes, any easy for anyone else to say who’s had more coffee, and I have this afternoon, but there’s geopolitical risks in this as well, too, right. And especially with China. China recognizes Taiwan as part of China and the rest of the world kind of recognizes that a as an independent democracy, but Taiwan is making so many of the world’s chips right now. And it’s getting smaller and smaller nodes. How do you see China impacting all of us another China’s really, really interested in having its own domestic supply of semiconductor chips, but that’s kind of challenging as process technologies continue to evolve out there.

Robert Quinn 7:40

Definitely. China is working on trying to – they’ve talked about, you know, expanding their semiconductor market and, and growing, they want to, they definitely want to dominate the semiconductor market. United States is pushing back in that by not allowing them to have certain equipment, such as the eUV tools that we spoke up. And because there are American patents within those machines, we’re restricting them from getting those that e equipment and expand allowing them to expand their eUV production. So but Taiwan is, there’s a lot of eggs in one basket with with Taiwan right now. From the United States, there’s every company from Intel, Tesla, Apple, all these companies are producing ships at TSMC, Taiwan. And so there’s a lot going on there and is, as you may, I just recently read that we have three fleet carriers off the coast of Okinawa, and that there’s a lot of military action going on out there in the China Sea. And so there’s it’ll be interesting to see how that plays out. And we’re sure hoping that that nothing happens. But it’s it is a risk right now. I think.

Simon Erickson  9:09

You mentioned a company when we were chatting right before the interview ASML (NASDAQ: ASML) and they play an important role in this as well. What does that company to and how does that impact the development of faster chips

Robert Quinn  9:20

ASML produces a tool called  EUV. EUV brings the semiconductor chips from the seven nanometre down to the smaller nodes. I believe it was $120 million for one machine.

Simon Erickson  9:43

Don’t drop it.

Robert Quinn  9:45

Yeah, they’re very expensive and, and they do take a long time to build they they are a I believe I read that they were one year to build one of these machines as well. But they are a big player in the market and they are a big player and and being able to continue our semiconductor growth worldwide. And so and producing these, these next level chips, and that will be that everybody’s wanting new in their phones and then in all the computing that’s going to be going on in the future, so.

Simon Erickson  10:24

And some of those like, like smartphones, have demands for very small chips, right? Even Tesla, you know, Elon Musk is wanting to have very, very specific high performance chips, they’re going to require those best in class that you know that Taiwan Semiconductors is glad that provides or higher prices. But because they’re kind of those supply tensions and everything else you’re talking about with China, do you see China taking a lot of the supply for things that don’t need to be less than seven nanometers? I mean, are they gonna be going after the, the less expensive chips that are used for everything else out there?

Robert Quinn 10:58

There’s going to be continued to be a big demand for all these other other chips that are, you know, 14 nanometers and above. And that’s where that’s where China’s really aiming right now to build those chips. And that’s probably part of their Belton building, what is it called the Belton Road Initiative, I believe it is. But they want to continue to build those chips for the world and then there’s the rest of you know, TSMC’s and the Intel’s in the Samsung’s that want to move into doing more with the seven nanometre and below and using the eUV equipment.

So it’s um, China’s, it’ll be interesting to see how China continues to grow in that market and how we may put restrictions on them to grow in that market. We really hindered their 5G development around the world by sanctioning a lot of their 5G. So it’ll be interesting to see if the United States continues to put sanctions on China with with other developments. And 5g was not the you know, it was not the super small nodes, but there was something that the United States didn’t want them to be producing. So that there was a lot of sanctions on 5G and we were fairly successful at handling that and for for China, but um, little they’ll continue to make a lot of the other chips and and they do it successfully. So there’s a lot of other countries that are are in are in contracts with with China and willing to buy a lot of chips from them, as we are to in the United States. So you know, even the United States is willing to buy chips from China, but But we, we are just trying to limit on what what they can produce, so.

Simon Erickson  12:55

Absolutely. So okay, so we’ve got some supply constraints right now. We’ve got some geopolitical tensions right now. It’s going to take some time for this capacity to take shape anyway. But – do you believe that there’s enough capacity going in place right between Taiwan Semi capacity, with Intel, bringing its foundries on board and Arizona. We’ve seen even Samsung is pledged and Global Foundries and every other chip maker out there seems like they’re investing at this part of the cycle. My question is actually about the Internet of Things. Because we’ve heard Cisco touting for years that they want to add 10 billion more Internet of Things devices in the next several years. Are we going to have enough capacity even after these expansions to keep up? Or is a world just perpetually now in this world have an insatiable thirst for more and more chips every year?

Robert Quinn 13:43

I believe that the chip, the need for chip continues. It doesn’t it doesn’t get it. We continue to need the chips and we will they will grow? I think we will I was talking to somebody the other day about how I see the chip, fabs produced being up and running in the next three years, these ones that they’re wanting in the United States anyways. They will be up and running in the next three to four years. And I continually get asked, Are we going to overproduce chips in the United States? And I think between the delays we will probably see the natural occurring delays and the probably a backup of equipment because this there’s so much equipment that will need to be ordered and produced and I just don’t see how these OEMs will be able to produce that much equipment that quickly but there will probably be a backlog of equipment anyways.

And and I could see how this will maybe turn that three years into you know, four years, maybe five years of, you know, getting these chip fabs online and producing chips. I see us in 10 years saying, Hey, we need to order more chips, and we need to we need to build more chip fabs, again, you know, and 10 years from now, we’re gonna say, Hey, we need to, because the growth of chip demand just keeps growing. And, it doesn’t really level off anywhere, and it continues to grow. But I don’t foresee us over producing chips. And then in the near future, because with the with the growth of shift demand, it will continue to, to go inside, in tune with each other.

And to top it all off these fabs who are, you know, 100 billion dollar facilities? There, they’re not going to produce these fabs unless they know they can make money. And they’re, they know that there’s a demand there. They know this exponential growth of chip demand. And they’re just not going to invest this money without having that demand in place. So yeah, but companies like Samsung, they work very frugally. And they’re super, super efficient. And the fact that we’re seeing Samsung saying that they want to invest in build fabs in United States tells me that that market is going to continue to grow. And because of the frugality, I worked at Samsung, and I’m familiar with them, but because they’re frugality, and I know how they operate that, that yes, we will continue to see that demand.

Simon Erickson  16:46

They’re not going to put money to work until they’re absolutely sure that there’s demand that’s going to back it up.

Robert Quinn  16:50

Right, right. Right, exactly. Yeah.

Simon Erickson  16:53

Let me take a step back and ask about design a little bit. It’s kind of we shift gears to a different subject. You know, we’ve seen CPUs kind of dominate for several decades. But then in recent years, you know, you see Nvidia go out there and kind of apply GPUs with parallel processing to the data center, it’s more efficiently processing for more specialized tasks. And now we’re starting to see more and more exotic, no TPU’s out there, or whatever, X or Z or YPU, everyone’s got their own flavor of the processing that they want to do as their workloads are getting harder and harder. But Robert, we’re also seeing some even even on top of that, it seems like there’s no limit to the design you can have for a processor. We’ve heard of quantum computing, kind of taking the scene now we saw AMD acquires Xilinx, which is very highly customizable out there. Heterogeneous computing is kind of a new topic that’s being talked about. And one that I’m less familiar with is the RISC-V open source instructions for chips that anybody could kind of plug into. I threw a whole lot of terms and ideas out there, but just kind of have to step back and broadly pick your brain about this. How do you see design evolving, and are there any technologies that you’re kind of betting are going to be a big deal in the coming years,

Robert Quinn  18:07

I’m definitely more focused on the equipment and the fab side. But I do keep up with a little bit of the design side. And it is a pretty neat to to keep up with because it is growing a lot. Obviously you have quantum computing that’s coming up and going to be a huge marketplace in the future. It’s it’s still growing. But there’s other things such as I believe it is called FPGA. It’s a chip that actually software makes the hardware. So you have an open source type of chip to where you upload software, and the software actually makes the hardware do what it needs to do. And this is this is really interesting technology in the sense of security because not only is your hardware not – the hardware is absolutely useless unless you have the software to make the hardware work. And so this is a nice security feature in that sense that you can basically, you know, produce a chip that’s not going to be operational, operational without that software. And then also there’s, you know, technologies, you know, to think that you can shoot a rocket into the rocket into space and change the hardware on the on the on the rocket just by uploading the software new software package to it. It’s pretty interesting. But yeah, that’s that’s something that’s interesting in that fact, but um, quantum computing is definitely coming. There are new other technologies that are coming, but I’m not very familiar with something about photon, I’m not going to get into it because it’s something I’m not familiar with at all. But it is a new technology I keep hearing about. And yeah, it’s it’s interesting to see how that technology is continuing to grow.

Simon Erickson  20:19

Yeah. Okay. So we’ve talked about downstream manufacturing, we’ve talked about design and how that influences to Let’s go, let’s go farther upstream. Now, Robert, and talk about wafer fabrication equipment, right? The the guys that are making the tools and the capital equipment that goes into making the silicon chips for all these guys downstream of that. What do you think about the Applied Materials in the Lam Research’s of the world? I mean, is this demand doesn’t matter what kind of chip you’re making, what kind of memory chip or what kind of processor you’re making? It seems like they’re in a great position to benefit no matter what it looks like, right?

Robert Quinn  20:50

Yeah, so I was looking actually at Applied Materials today, they have over 2000 positions open right now.

Simon Erickson  20:57

Wow.

Robert Quinn  20:57

They are in a mass hiring phase to try to keep up with all this? It’s, they a lot of this new equipment will will also be based on epi, which is epi will will help us develop that three dimensional processor. And it’s a that is something that maybe a tool that not so many fabs currently use the especially the older 200 millimeter fabs, but with the new technology and the way that they’re developing the chips, that changes the equipment sets that they will have to have in the fabs to be able to keep up with the the new chips that they want to make. So changing a you know, bridge, just bringing the nodes down, bringing the gate size down is one thing but also how the chips are made three dimensionally epi actually grows silicon.

And then there’s other equipment as well. We’re going we’re using a lot of tool we’re fixing to go into a new market of silicon nitride. Silicon nitride will be the new power chips, instead of using silicon, they’re going to use a silicon nitride or silicon, si or si n. It’s, it’s the silicon nitride, which will help with the power producing chips. So anything that anything that has power, there’ll be very, you’ll start seeing a lot more silicon nitride being used for for power producing chips. I read today that Taiwan Semiconductor is going to be getting more into this. And there’s there’s a couple other companies that are getting into it as well. So it’s a new market that’s coming up. It’s really big.

Simon Erickson  22:58

Yeah, Robert, I know that you are a kind of an expert in the semiconductor industry, you publish a lot of content to LinkedIn. As my final questions, first of all, where can we go to to follow you if you want to learn more about semiconductor industry, and then coupled with that is maybe just what’s one or two things in the industry that you’re kind of excited about that you’re following right now?

Robert Quinn  23:20

If you want to follow me on, just go to LinkedIn, LinkedIn, and look me up, I’m Robert Quinn, semiconductor industry content provider and pretty easy to find I have posted, I’ve posted hundreds of posts. I post about four times a day, and on the semiconductor industry, and I’ve had about 1.5 million views of my content just this year to date. So it’s a lot of a lot of viewership and getting a lot of attention. But uh, things that are interesting me right now, mostly in the market, is the growth of, of these new fabs in the United States. There’s still a lot of toss up of where Samsung is going to go. Is it going to be in Arizona? Is it going to be in New York is going to be in Austin, Texas. The little birdies that talk in the you know, you hear the rumors. And the rumors I hear are in Austin, and they say that it’s going to happen in Austin.

Simon Erickson  24:19

But the more traffic for you right down the road.

Robert Quinn  24:21

They are just rumors right now, but Samsung still hasn’t committed to making that, you know, making that a public announcement that they’re going to build and where they’re going to build. I believe that they’re still trying to there’s Austin has has pushed back on their their proposal. They propose getting some odd millions of dollars in incentives and city and state of Austin have pushback on that. And so I believe that there’s kind of a rumble there between the two of them. And hopefully, hopefully they come to their senses. And because it would be such a good thing for Austin, Texas to get that fab. And and I think that would be, that’d be great.

But just keeping up with the market and seeing who’s expanding and who’s going to build these fabs. I mean, these fabs are, you know, Samsung is talking about $17 billion. Intel is talking about spending $200 billion. Intel’s starting off with 35 billion going up to 100 billion. And not not until I’m sorry, TSMC. And seeing the growth of the markets in the same how much they’re expanding, tells us a lot what about what the chip production need is going to be in the future. And Putin, the President of Russia, put it in an interesting term, he said, the leader of technology will be the leader of the world in the future. And I think that United States definitely sees that as a need to be the leader of technology of the world. And so we’re investing a lot we’ve got a lot of government backing coming to these fabs and to all this chip production. And so we’ll we’ll definitely see where it takes us in the future, though.

Simon Erickson  26:27

It is definitely a trend that we need to have on our investing radar when you see 10s if not hundreds of billions of dollars that we know are tied directly to customer demand. Definitely something that we should be watching. Robert, I really appreciate your time. Thanks for joining me on the 7investing podcast today. No problem. It was great. Great being with you. Thanks. And once again, you follow Robert quit on LinkedIn and we really appreciate you tuning in to this episode of our 7investing podcast. We’re here to empower you to invest in your future. We are 7investing

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