Crisis (Premium)

In a recent interview with CNET, incoming Qualcomm CEO Cristiano Amon describes the semiconductor shortage as a crisis that spans markets and industries.

Crisis is an interesting word, and it’s one that’s often abused. In the late 2019 months leading up to the pandemic, for example, we were told---mostly by Microsoft and Intel---of a crisis involving the availability of certain types of PC-based chipsets---but that event was, at best, limited in scope to the PC industry. (And at worst was invented.) That “crisis” was used to explain away why certain companies were underperforming at a time when they should have been more agile in meeting customer needs. It’s the classic magician’s trick of waving one’s hands to diver the attention of the audience from what’s really happening.

But the crisis that Amon speaks of is real and it therefore demands attention. Without understanding the root causes, I might have assumed that it was triggered by the pandemic, which seems reasonable and obvious. And then I would have wondered how it could be happening now, a year later, given that most manufacturing had returned to some semblance of normal many months ago.

The semiconductor shortage is impacting more than just a portion of the PC market; it’s affecting industries as diverse as automotive, video gaming, graphics cards, and smartphone makers. But according to Amon, the pandemic’s role was the unexpected and ongoing surge in demand for products related to working and learning from home coupled with the failure of previously successful “just in time” manufacturing techniques. It’s a perfect storm that no one could have predicted.

This is problematic for Qualcomm and its next CEO. The firm faces massive competition on multiple fronts, and backlash and mistrust from customers who have experienced the terribleness of 5G networking. But it is the semiconductor shortage that, in his words, “keeps him up at night.” Extinction-level events are actually pretty rare in technology circles these days, especially for successful companies like Qualcomm. But the shortage is something the company can’t control or fix on its own. The cracks are showing. Hey, just ask Huawei how quickly things can go south: For one quarter in 2020, it was the largest smartphone maker in the world. Today, its share is dwindling, and the company is on war footing just so it can survive.

Fixing the semiconductor shortage seems obvious enough until you think it through: Just build more capacity in the form of more factories, right? And then the amount of time required to read that sentence passes and you realize that these factories cost many billions of dollars to build and maintain, and that they can’t be erected or staffed quickly. And ever-shifting geopolitical forces are triggering changes in where these factories should be built, with less of an emphasis on China going forward and more on places like Vietnam, India, and elsewhere. I ass...