Chip makers are desperately trying to add production capacity to combat a global shortage of chips. But they are struggling to buy all the chip-making equipment they need—partly due to the chip shortage itself.

Executives at Applied Materials, which makes equipment used to manufacture chips and other electronic components such as displays, said the supply chain bottlenecks are taking a toll on its revenue and profits. CEO Gary Dickerson said on a recent conference call for investors and analysts the chip shortage forced it to push out $300 million in revenue for the fourth quarter of 2021, which ended October 31.

“Demand for semiconductors and equipment continues to grow as the pandemic accelerates digital transformation of the economy, and currently, our supply chain cannot keep up,” he added in a statement. He said the supply chain bottlenecks would likely last into the first quarter of fiscal 2022 and then improve throughout the next year. Applied counts chip-making giants like Intel and TSMC as top customers.

“We expect supply shortages of certain silicon components to persist in the near-term and managing these constraints in partnership with our suppliers and chipmakers is our top priority,” Dickerson said.

Applied Materials is the world's largest vendor of semiconductor gear used in the front end of the chip-making process, for tasks such as depositing material on a slab of silicon and carving out the transistors and other tiny components of a chip. It also sells process-control equipment to identify problems. The chip shortage has pushed many of its customers to invest billions of dollars to expand or upgrade their fabs.

The issue is that Applied Materials, Lam Research, and other equipment vendors are fighting over the same limited chip supply as everyone else. As a result, the shortages are dragging out lead times, or how long it takes between when equipment is ordered and when it is delivered to a customer. Longer lead times and shipping snags mean that it takes longer for firms to ramp up production capacity for chips in tight supply.

CFO Bob Halliday said that only 10 out of the thousands of electronic components used in Applied Materials’ equipment and machinery had caused its procurement challenges in the fourth quarter.

Production delays have led to a severe global deficiency of chips that has caused chaos in the electronics sector. Chip inventories have been depleted as demand rises for a range of devices from smartphones to cars, causing lead times to hit record highs. Prices for many chips are also up because of the shortage of chips. Shipping delays and high freight rates are among the other challenges facing firms such as Applied.

Chips manufactured at mature nodes such as microcontrollers (MCUs) and power management ICs are currently in tight supply with long lead times. These types of chips are used as supporting parts in almost every electronic device, including fab gear. Applied said its suppliers have been struggling to procure the analog, power, and logic chips at the heart of the programmable logic controllers (PLCs) in its systems.

Industry executives have warned that the chokepoints in the chip supply chain could last into mid-2022 and possibly 2023. “There is still a long way to go before supply and demand are balanced,” Dickerson said.

Despite the challenges, Applied Materials said its fourth-quarter sales leaped to $6.12 billion from $4.69 billion in the same quarter last year. Net profit jumped by more than 50% to $1.71 billion, or $1.89 a share.

Applied Materials said orders in its core semiconductor equipment business were up 78% last quarter.

“Customers are taking all the tools we can ship,” Halliday said. The company said that its order backlog for semiconductor equipment leaped from $5.5 billion to $6.7 billion in its fourth quarter.

The maker of chip-manufacturing equipment said that it forecasts profits of between $1.78 and $1.92 per share in the first quarter of 2022 ending in January on revenue of $6.16 billion, plus or minus $250 million.

By: DocMemory
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