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 assume the chipsets of the 2030s will be manufactured in even less expensive places like Africa. Regardless, you can bet they won’t be built in the United States. Sorry, President Biden.

At least Qualcomm doesn’t build its own chips: It designs them in-house, and it then relies on outside fabricators like Samsung and TSMC, as do AMD and Apple. But Intel, once the world’s biggest maker of microprocessors, does build its own chips, and it now faces an uncertain future in which it will need to decide whether—really, when—to continue this expensive practice or to embrace the inevitable and turn to outside fabs.

Qualcomm’s agility has long been a core strength, helping it surpass Intel to take the microprocessor crown. But it hasn’t helped the firm overcome the crisis it now faces. Customers are still waiting for products because the companies that still make them are waiting for fabs to produce the chips needed to power those products. Ford, for example, has literally cut production of the F150 pickup truck, by far the most popular passenger vehicle in America, because it can’t get the chipsets it needs.

It’s going to be a tough year for Qualcomm. And for much of our industry, and other industries. And there isn’t a damn thing that Amon can do about it except to help ensure that this never happens again.

“This is going to get better as we get to the end of 2021,” he told CNET. “But the importance of this is to call attention and make sure that we have … [a] robust supply chain, and investments are made … across a number of technologies.”

I’m sure we’ll eventually get ahead of this. But if history is any guide, we’ll do so just in time to be confronted by another unrelated crisis for which we’re not ready. Round and round we go.