Requiring up-front contributions to capex and uncancellable orders are two strategies adopted by the semiconductor industry during the current shortages.

UMC asked customers for the $3.5 billion cost of a new fab. GloFo and NXP came up with the concept of orders which could not be cancelled. Microchip, where orders are 50% more than it can supply, offered priority delivery to customers who signed orders which couldn’t be cancelled or changed for a year. Before the shortage, Microchip customers could cancel an order up to 90 days before delivery.

In an industry where double and triple ordering means that a shortage can turn into a glut overnight, it is how the industry protects itself against the consequence of over-spending on capex or new hires just as demand dries up.

Marvell says it now gives its foundries a five year forecast of its requirement whereas pre-shortage the forecasts were only for one year.

The reason for doing that is is that at a time when suppliers can choose who to favour among their customers with prompt supplies, one way to get their favour is to give long-term demand forecasts.

Grey market tales are dramatic. The prices of some MCUs have increased 20x as leadtimes extend beyond a year.

The question is: Can the chip companies maintain these practices when supply and demand come back into balance? And the answer is: They never have.

By: DocMemory
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