Carmakers crying out for chips fuels growth for semiconductor foundries

The worldwide bottleneck in semiconductors that’s disrupting production of automakers from Toyota Motor Corp. to Volkswagen AG is turning into a growth opportunity for a global chipmaker.

File image used for representational purposes
File image used for representational purposes

Globalfoundries Inc. is running its factories at an unprecedented clip and prioritizing chips for cars to satisfy demand, said Mike Hogan, who heads the firm’s automotive business unit. The closely held company wholly owned by Abu Dhabi’s sovereign wealth fund expects revenue from the sector to more than double this year.

“What we’re outputting is record output, and what we’re spending to increase that is double what we spent in 2020," Hogan said in an interview.

Also Read : Missing auto-chips snarl car production at factories worldwide

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The auto industry needs all the help it can get to solve a supply issue that’s imperiling car plants around the globe. Production crashed during last year’s lockdowns to contain the spread of Covid-19, but demand rebounded much more quickly than expected. That’s posed a challenge to Globalfoundries and its larger peer Taiwan Semiconductor Manufacturing Co., who need months to produce chips and must also meet voracious appetite for those powering smartphones, game consoles and computers.

Automakers including Toyota, VW, Daimler AG, Nissan Motor Co., Honda Motor Co., Ford Motor Co. and Fiat Chrysler Automobiles NV have warned the chip shortage is affecting their output.

Consumer-electronics companies including Apple Inc. usually take up much larger capacity at foundries than automakers, as the annual smartphone market alone is more than 1 billion devices, compared with fewer than 100 million cars.

Globalfoundries, which runs factories in the U.S., Germany and Singapore and accounts for 7% of the global foundry market, according to TrendForce data. Taiwan’s TSMC dominates with a 54% share. The firms are responsible for making a significant portion of the world’s semiconductors and serve automotive-chip companies including Infineon Technologies AG.

Also Read : Honda's domestic output could be affected by parts shortage

Complex Manufacturing

Supply for the auto sector in the near term is “very difficult," in part because the semiconductor industry’s lengthy manufacturing process means clients are penalized for wrongly anticipating demand, Hogan said. Globalfoundries is doubling its capital expenditures this year as it expands its offerings for carmakers, he said.

Hogan said the bottleneck affecting the auto industry is “relatively manageable" in the longer term because overall demand from the sector remains small compared to what other industries order.

“I think this will drive the automotive market to see how important semiconductor technology is to their interests," he said. “The auto industry -- much like the smartphone industry and the PC industry -- will wind up spending more time with the foundry partners making sure that somebody has secured the capacity that’s required today, tomorrow and after tomorrow."

First Published Date: 14 Jan 2021, 16:57 PM IST
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