The demand for semiconductor chips continues to grow globally, outpacing supply constraints in a global market that has been hit hard by pandemic-driven supply chain woes. Now, ASML, the keystone producer of the lithography machines used to make advanced semiconductor chips, has said that it anticipates a two-year shortage for the industry due to shortages of necessary parts for its machines, reports Financial Times.
The announcement comes at a time when chipmakers are looking to increase their production to meet soaring demands and countries are working to build out their own semiconductor chip production in an effort to reduce impacts from supply chain constraints. The machines that ASML produces etch circuits onto silicon wafers, and ASML is considered to be the most important company within the entire industry, according to Richard Windsor, tech analyst for Radio Free Mobile.
“Next year and the year after there will be shortages,” said Peter Wennink, CEO of ASML. “We’re going to ship more machines this year than last year and . . . more machines next year than this year. But it will not be enough if we look at the demand curve. We really need to step up our capacity significantly more than 50 per cent. That will take time.”
The semiconductor market is one that is forecast to double to $1 trillion by 2030 according to analysts, and shortages in the vital machines mean that companies like Intel are already having to curtail their growth expectations in the coming years. Intel has already sent manufacturing experts to ASML to help assess and build out production capabilities, but it’s a process that will take time.
“Today this is a constraint,” Pat Gelsinger, CEO of Intel, told Financial Times, explaining that building out the existing chip factory would take two years to do. “Then you start to fill it with equipment in year three or four.”
It’s a multi-tiered issue, with production capacity not expected to grow until new manufacturing plants are up and running in 2024, and shortages in vital parts from suppliers. German manufacturer Carl Zeiss makes the most complex and important part of ASML’s machinery, the lens.
“They need to make significantly more lenses,” Wennink explained. It’s a process that first requires the company to “build clean rooms; they need to start asking for permits; they need to start organising the building of a new factory. Once a factory is ready, they need to order the manufacturing equipment; they need to hire people. And then . . . it takes more than 12 months to make the lens.”
The Implications for Electric Vehicles
Semiconductor shortages that began with the onset of the pandemic in 2020 have caused supply constraints across many industries, including electric vehicles. Demand continues to grow, particularly in lieu of soaring gas prices, and a semiconductor shortage could drive prices higher in the interim.
For investors looking to capture the growth potential of the EV industry globally and any price increases that may happen, the KraneShares Electric Vehicles and Future Mobility ETF (KARS) offers a good opportunity.
KARS invests in many familiar car companies such as Tesla, Ford, Mercedes-Benz, GM, BMW, and others, as well as major Chinese EV manufacturers such as Xpeng, Nio, and BYD, some of the biggest companies in the global electric vehicle industry.
KARS measures the performance of the Bloomberg Electric Vehicles Index, which tracks the industry holistically, including exposure to electric vehicle manufacturers, electric vehicle components, batteries, hydrogen fuel cells, and the raw materials utilized in the synthesis of producing parts for electric vehicles.
The index has strict qualification criteria. Companies must be part of the Bloomberg World Equity Aggregate Index, have a minimum free-float market cap of $500 million, and have a 90-day average daily traded value of $5 million.
The ETF has an expense ratio of 0.70%.
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