Taiwanese chip company warns of rebound after rush to increase capacity
TAIPEI – Tech vendors rushing to ramp up production amid an unprecedented global chip shortage risk being stung once supply catches up with demand, according to the chairman of one of the world’s leading manufacturers. Taiwan chip materials.
Canon Huang, chairman and CEO of Chang Wah Electromaterials and Chang Wah Technology, told Nikkei Asia that a market correction is inevitable given the number of chipmakers ramping up production to deal with supply shortages. that have affected a large number of industries, from cars to consumer electronics. Intel and TSMC – the world’s two largest chipmakers – have announced aggressive expansion plans, while smaller chipmakers such as Nanya Tech and United Microelectronics also plan to build more factories.
“It could be dangerous if you don’t increase capacity like your peers, because you will lose market share and growth opportunities,” Huang said. “But that could also be a concern if you increase the capacity, as there will surely be a correction at some point in the future.”
A good business, he said, “must have risk management plans to fully prepare for any coming recession or correction in order to avoid serious injury.”
Three chip industry executives called Huang during his interview with Nikkei Asia. All, he said, were asking for more lead frame supplies, even if that meant paying a higher price. Lead frames are a type of metal carrier used in chip packaging, the crucial final step in the chip manufacturing process. Chang Wah Technology, the main subsidiary of the Chang Wah Group, is the world’s second largest manufacturer of lead frames and supplies chip makers such as Texas Instruments, Infineon and NXP, as well as virtually all packaging and testing service providers. of chips, including ASE Technology Holding and Powertech, according to analysts and industry sources.
As customers demand more supplies, Huang said his company needs to carefully weigh each request.
“We really can’t commit an allowance too early, and if we agree to give more to one customer, I may have to give less to another customer,” Huang said. “It’s very interesting – normally it’s cheaper per unit when you buy more, but in times of shortage it’s more expensive if you want to buy more.”
Having a fair and professional sourcing team for a corporate customer has also become more important amid the chip shortage, the industry veteran said. “If you used to abuse the power of being a big customer and always forcing your suppliers to cut prices, you might suffer more in the event of a shortage. You might receive less support from the vendors and it can be difficult to get everything you need as everyone is rushing for more. “
The shortage is not confined to one part of the supply chain, Huang added, saying it extends from the manufacturing and packaging of chips to basic materials, including the molding compound – a kind of protective material used in chip packaging and high-end copper and copper alloy. .
The component shortage has also hit makers of chipmaking tools, creating a vicious cycle that makes the underlying shortage harder to resolve, as Nikkei first reported.
Huang also spoke of geopolitical tensions and said the tech industry must adapt to a world with two supply chains, one serving the United States and the other China.
“It is very obvious that the next world will be divided into two segments because the geopolitical tension will not go away anytime soon,” Huang said. “It’s hard for vendors to choose sides, but we all need to be aware of geopolitical risks and formulate plans that could serve both worlds, rather than betting on who wins and who loses. “
The United States is redoubling its efforts to stimulate local production of chips, which are needed not only for consumer electronics, but also for supercomputers and fighter jets. China, meanwhile, continues to support its domestic semiconductor industry as the government views chips as directly related to national security.
Huang said his business will continue to expand in China, including setting up a joint venture with companies there, and will also increase its investments in Taiwan and Malaysia to serve non-Chinese customers. The company is building a $ 100 million factory in Kaohsiung city, southern Taiwan, which is expected to start production at the end of next year. It is also considering adding capacity in Malaysia.
Chang Wah, based in the city of Kaohsiung in southern Taiwan, saw revenue increase 6.2% from a year ago to 16.42 billion New Taiwan dollars ($ 590 million) for 2020. In the first five months of 2021, Chang Wah generated 18% more revenue. than a year ago. The Taiwanese company is also a key distributor of molding compounds for Sumitomo Bakelite, the world’s leading manufacturer of critical chip packaging materials.