Top German semiconductor firm sounds alarm on chip supply

Berlin — Strains in the semiconductor supply chain have worsened in some areas as trends such as remote working combine with an industrial recovery in developed nations from last year’s pandemic slump to drive chip demand, the head of Germany's Infineon said.

The ability of chipmakers to add capacity is limited, while some in Asia face further production constraints as they seek to contain Covid-19 outbreaks in their workforces, CEO Reinhard Ploss said.

“The situation is still difficult — in some areas it’s even more than difficult,” Ploss, 65, said in an interview.

Pandemic trends such as remote working and home schooling have powered demand for high-end consumer electronics, straining supplies of lower-margin chips to manufacturers and forcing many carmakers to idle production in the first half of 2021.

Infineon, the leading supplier of power semiconductors to the automotive industry, relies heavily on contract chip manufacturers such as TSMC with which it is in a “deep dialogue” on meeting customer needs, Ploss said.

He chided the contractors in May for failing to invest enough in new capacity, with Infineon particularly hit by scarcity in the older 20- to 90-nanometer chips used in its product range.

Infineon was better able to meet demand for the specialist products it makes in-house, with its new plant in Villach, Austria, due to launch production soon while its facility in Dresden, Germany, still has spare capacity.

“We have two sites to ramp, which is advantageous [compared with] the majority of our competitors who are short on everything,” said Ploss.

Still, the overall level of product stocks that Infineon has on hand is depleted, he said. Bringing supply into balance with demand would require chipmakers to run a temporarily overloaded supply chain, he added.

Who needs this?

The chip supply crunch has provoked debate in Europe about whether to invest in new production capacity to reduce its dependence on imports from the Asian manufacturers that dominate the industry.

Ploss, however, questioned the goal set by Brussels of building a state-of-the-art 2-nanometer plant.

“If the decision was made for a 2-nanometer factory in Europe, I would question who the customers should be,” he said. “Mobile phone companies? There aren’t that many of those around in Europe any more. Computer manufacturers? We may use computers here but we do not build them.”

Industrial policy should focus on Europe's traditional strengths in manufacturing, Ploss said.

“Once it comes to taking the next step, I definitely think that Europe has to think in domains of strength,” he said. “But, as always, before moving into new fields, we should strengthen our strengths and push the envelope from there.”

Reuters