Due to chip shortage, Texas devices cost $170 billion

Technology executives say this year’s supply-chain bottlenecks, which have affected parts for everything from iPhones to Ford F-150s, are especially acute in chips that don’t shuffle zeros and ones. Huh. Analog chips treat incoming information about temperature, sound and electric current with multiple gradations on a scale more like a human.

The largest analog chip makers are Dallas-based Texas Instruments, founded in 1930. TI engineer Jack Kilby is credited with inventing the integrated circuit in 1958.

Students and engineers know TI for its hand-held calculators, which it still makes. But its $170 billion market capitalization is built on its dominance in analog chips, which account for 17% to 20% of the world market this year, according to Taiwan-based market research firm Trendforce.

While makers of sophisticated digital chips such as Intel Corp. and Samsung Electronics Co. get most of the spotlight, the lack of analog chips that cost a few dollars can lead to supply chains for products worth billions of dollars in sales.

Taiwan-based laptop manufacturer Asustek Computer Inc. Co-CEO Samson Hu recently expressed regret that his factory assembly line was being disrupted by a lack of analog chips to manage battery usage or enhance sound effects. They used an acronym for the term “integrated device manufacturer”, a class of companies including analog-chip makers that design and build their own chips.

“The uncertainty, as we’ve seen, is inherent with a certain large US IDM company,” Hu said on an earnings call in November. He did not name the company, but industry executives said that based on Mr. Hu’s description of the larger company’s product, he was referring to Texas Instruments. A spokesperson for Asustec declined to comment, and representatives for Texas Instruments did not respond to repeated requests for comment.

Mr Hu said he expects supplies from the US company to be tight until its capacity expansion next year. TI has said that a new $6 billion factory is set to open in Richardson, Texas, in the second half of 2022.

Apple Inc. Its chief executive officer, Tim Cook, talked in an October earnings call about the billion-dollar sales opportunities Apple is hurting because a lack of parts means it can’t make enough iPhones and other devices. Mr. Cook referred to “legacy nodes”, a term for older production processes that included analog chips and some digital chips.

“Chip shortages on legacy nodes are happening,” said Mr. Cook. “Primarily we buy leading-edge nodes, and we don’t have a problem on leading-edge nodes. But on legacy nodes, we compete with many different companies to supply.”

In addition to Texas Instruments, major analog-chip manufacturers include Analog Devices Inc. of Wilmington, Mass., and two European companies, Infineon Technologies AG and STMicroelectronics NV.

Industry executives and analysts say TI’s problems with meeting demand are similar to those of other companies, but it attracts more attention because of its leading position.

Texas Instruments says it is doing its best to serve customers and acknowledges that some are not getting everything they want. “Clearly, we’re down the list where we want to be,” Chief Financial Officer Rafael Lizardi said in an October earnings call.

The company has new capacity in operations that it says will require tens of billions of dollars in investment, with construction starting next year at two factories in Sherman, Texas.

At a September investor conference, Chief Executive Rich Templeton cited this road map to be patient. “You can’t change your capacity footprint in a substantial way within a year or two. We would love to have more capacity now. But there are a lot of things in life that you would love,” he said.

Texas Instruments has 15 manufacturing sites around the world. Apple has added TI to its supplier list and named eight TI locations, including Texas, Maine, Taiwan, Japan, and China’s Sichuan province. People in the Apple supply chain say TI parts are one of the reasons for the shortage of products like the iPhone this year. Apple declined to comment.

Research firm Trendforce said in a December report that analog-chip makers have a backlog of orders from automotive customers through the end of 2022. Consumer-electronics makers are also dealing with months of waiting and higher prices, it said.

The world’s largest and most valuable chip makers—Taiwan Semiconductor Manufacturing Company, Samsung and Intel—have spent tens of billions of dollars on new capacity. Generally these chips have been plentiful.

Industry executives and analysts say that even though there are 50 or more chips in the latest high-end smartphones, only four or five fall into the leading category. Others include analog chips that perform tasks such as powering the phone’s display or managing its battery charger.

Analog-chip manufacturers design, manufacture and sell the chips themselves, which is why they are included in the category of integrated device manufacturers. In contrast, advanced digital chips are often designed by one company and made by another, usually a specialized “fab” such as TSMC.

In volume terms, about 80% of the world’s semiconductor production comes from IDM, said Zhao Haijun, co-chief executive of Semiconductor Manufacturing International Corp., China’s largest contract chip maker.

At an industrial forum in Shanghai in November, Mr. Zhao said major IDMs were four to five months behind in meeting demand and usually didn’t create much of a mess in their plans.

“A reduction of 5% could lead to a huge jump in prices,” he said. “It’s a result of inflexibility along the supply chain.”

Yet analog-chip makers have been cautious about expanding because of the industry’s history of booms and busts. Texas Instruments executives have said they want to be disciplined in meeting customer demand.

“At some point, they’ll have a lot more product, and that’s what creates cycles in our industry,” TI’s investor-relations chief Dave Pahl said on an earnings call in October. “So it wouldn’t surprise us if the cycle ends at some point. We’ll be prepared for that.”

This story has been published without modification in text from a wire agency feed