WEBVTT - Stacy Rasgon on How the Global Chip Crisis May Be Getting Even Worse 0:00:10.960 --> 0:00:15.080 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:15.160 --> 0:00:20.600 I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, you know, 0:00:20.680 --> 0:00:25.520 obviously all year we've been talking about inflation and supply 0:00:25.640 --> 0:00:30.040 chain issues and shortages, but one of the first areas 0:00:30.120 --> 0:00:33.400 that we really started talking about was the head to 0:00:33.400 --> 0:00:37.559 do with the disruptions and semiconductors. Yeah, I think this 0:00:37.720 --> 0:00:42.199 was like our entry into global supply chain issues. Um, 0:00:42.280 --> 0:00:45.640 we started talking about semiconductors and this idea that there 0:00:45.720 --> 0:00:48.080 was a shortage of these chips that were needed for 0:00:48.120 --> 0:00:50.559 all sorts of things. And I think, you know, if 0:00:50.640 --> 0:00:53.960 you are of a certain age or generation, you tend 0:00:54.000 --> 0:00:57.360 to think of semiconductors is something that goes into a computer. 0:00:57.480 --> 0:01:01.040 But of course nowadays they show up in phones, in 0:01:01.280 --> 0:01:04.640 you know, things like refrigerators, and of course some cars 0:01:04.680 --> 0:01:07.760 as well. Just almost every major appliance now seems to 0:01:07.760 --> 0:01:10.840 have some sort of chip embedded in it. Right, And 0:01:10.880 --> 0:01:16.040 we did like a six episode series I think, earlier 0:01:16.040 --> 0:01:19.959 this year about chips. But the chip story, even though 0:01:19.959 --> 0:01:22.200 we haven't talked about as much lately, it really hasn't 0:01:22.240 --> 0:01:24.600 gone away. And I think I just saw last week 0:01:25.000 --> 0:01:28.640 there was a story about some chip manufacturer in Malaysia 0:01:28.760 --> 0:01:33.480 reducing production. They're pretty regular stories. You mentioned automobiles about 0:01:33.959 --> 0:01:38.080 car companies still not being able to get an adequate 0:01:38.120 --> 0:01:40.440 supply of chips and thus being forced to cut production. 0:01:40.560 --> 0:01:44.200 So they the issues have not gone away by any straight. Yeah, 0:01:44.240 --> 0:01:48.520 I think Toyota made a massive downgrade to its expected production. 0:01:48.640 --> 0:01:51.960 But yeah, so this is something that I've been wondering about. 0:01:52.000 --> 0:01:54.840 So on the one hand, yes, we have some COVID 0:01:54.880 --> 0:02:01.560 outbreaks in Asia that have disrupted semiconductor factories or manufacturers, 0:02:01.600 --> 0:02:04.880 particularly in Malaysia where they manufactured. My understanding as they 0:02:04.920 --> 0:02:09.480 manufacture some components for semiconductors or something like that. So okay, 0:02:09.480 --> 0:02:12.240 you have the Delta variant and that's not production to 0:02:12.400 --> 0:02:15.280 some extent. But on the other hand, you know, as 0:02:15.360 --> 0:02:18.240 you said, this issue has been going on for quite 0:02:18.280 --> 0:02:21.800 some time now, like more than a year, and the 0:02:21.840 --> 0:02:25.400 big question is why aren't we getting to a better 0:02:25.440 --> 0:02:28.760 place in terms of production at this point. The semiconductor 0:02:28.800 --> 0:02:31.920 companies know that they need to boost production. They know 0:02:32.040 --> 0:02:36.600 there's lots of demand out there, so why isn't that happening. Well, 0:02:36.639 --> 0:02:39.360 hopefully we are going to get some answers today on 0:02:39.400 --> 0:02:41.280 the show. Why it is that we're now in the 0:02:41.280 --> 0:02:44.919 middle of September. Uh, and we still don't have something 0:02:44.960 --> 0:02:48.240 resembling like a smooth semiconductor supply chain. We're gonna be 0:02:48.240 --> 0:02:50.720 going back to our first guest that we had on 0:02:50.760 --> 0:02:53.520 the Semiconductor series. I think he actually appeared twice already. 0:02:53.639 --> 0:02:56.280 The last time was in March. We're gonna be speaking 0:02:56.320 --> 0:03:00.320 with Stacy Raskin. He's managing director and senior analyst at 0:03:00.320 --> 0:03:04.680 Bernstein covering u S semiconductors. He's going to hopefully answer 0:03:04.720 --> 0:03:08.200 all of our questions. So Stacy, welcome back to Odd Lots. Oh, 0:03:08.240 --> 0:03:10.160 it's great to be back. Thank you for having me again. 0:03:10.520 --> 0:03:13.280 So are we right? I mean, it appears not only 0:03:13.560 --> 0:03:16.960 are the issues persisting like in some some in some measures, 0:03:16.960 --> 0:03:20.079 things seem to be getting worse. Yeah, And so we 0:03:20.120 --> 0:03:22.600 had hoped that by now things would be getting back 0:03:22.600 --> 0:03:25.959 to some semblance of normalcy, and and you're right, they're 0:03:25.960 --> 0:03:28.360 really not. It's actually getting worse, not better, in many 0:03:28.520 --> 0:03:31.360 parts of the market. So we still are seeing you know, 0:03:31.440 --> 0:03:34.800 production shortfalls, we're still seeing shortages. You know, We've been 0:03:34.800 --> 0:03:37.200 hoping obviously that you know, COVID would be you know, 0:03:37.360 --> 0:03:38.960 on on the decline at this point, it is not 0:03:39.080 --> 0:03:41.480 it is still causing disruptions. You mentioned Malaysia and some 0:03:41.520 --> 0:03:44.120 other areas. So yeah, we're we're we're not back to 0:03:44.160 --> 0:03:46.720 normal yet. We're still seeing some of the same issues 0:03:46.720 --> 0:03:50.120 that we've been seeing for quite a while. So what 0:03:50.280 --> 0:03:53.280 exactly is driving those disruptions then? So you know, you 0:03:53.320 --> 0:03:57.800 mentioned some COVID outbreaks in parts of Asia, but it 0:03:57.920 --> 0:04:02.160 seems to be you know, we might see some factory closures, 0:04:02.160 --> 0:04:05.840 some isolated factory closures, but it seems like the issues 0:04:05.840 --> 0:04:08.840 are sort of more endemic than just you know, an 0:04:08.840 --> 0:04:12.560 outbreak at a particular factory. Yes, I mean may be 0:04:12.680 --> 0:04:15.400 helpful to go back a little bit and talk about 0:04:15.440 --> 0:04:17.240 what caused these shortages in the first place. And I 0:04:17.440 --> 0:04:19.400 talked about this, I think I can't remember, maybe it's 0:04:19.400 --> 0:04:21.680 the second time that I was on. But if we 0:04:21.720 --> 0:04:24.240 if we look at the automotive sector first, that that's 0:04:24.279 --> 0:04:26.320 where we're seeing some of the biggest issue. We've seen 0:04:26.360 --> 0:04:28.320 the biggest issues all the whole time, and you're right, 0:04:28.360 --> 0:04:31.240 we're still actually seeing production costs. You mentioned Toyota. We 0:04:31.279 --> 0:04:33.919 also had recently, GM and Ford and a bunch of 0:04:33.920 --> 0:04:36.400 others and then it's been going so they're still seeing shortages. 0:04:36.600 --> 0:04:39.520 You have to remember the issue there was initial supply 0:04:39.600 --> 0:04:41.880 chain whipsaws. You know, in the in the beginning of COVID, 0:04:41.920 --> 0:04:45.359 factories got shut down. Um you know, people were locked 0:04:45.360 --> 0:04:47.919 in their houses. They weren't driving demand at least initially 0:04:48.160 --> 0:04:50.800 for for small amount of time plummeted and remember the 0:04:50.839 --> 0:04:54.880 auto vendors canceled all their orders. Demand came roaring back 0:04:54.920 --> 0:04:57.960 obviously the plan started opening up. They went back hat 0:04:57.960 --> 0:05:00.279 in hand to try to get capacity, to get pret action, 0:05:00.320 --> 0:05:03.040 and it just didn't exist. And it was like, well, 0:05:03.400 --> 0:05:05.400 you know, get in line right, it'll it'll take time. 0:05:05.400 --> 0:05:08.039 And remember what I said. You know, even if you're starting, 0:05:08.120 --> 0:05:10.640 even if you have the capacity available, it takes months 0:05:11.360 --> 0:05:13.320 um to make these chips from a from a dead start, 0:05:13.360 --> 0:05:17.440 and so that caused you know, cascading effects. I mean 0:05:17.440 --> 0:05:20.000 it still has, right, and you know that. The other 0:05:20.000 --> 0:05:21.760 issue in the other end markets was just demand is 0:05:21.880 --> 0:05:23.720 very strong and that was part of the reason we 0:05:23.760 --> 0:05:25.720 saw issues in auto as well. I mean, the capacity 0:05:25.760 --> 0:05:28.200 that they were using got back filled in many cases 0:05:28.240 --> 0:05:31.400 by other stuff. But just in general we've seemed really 0:05:31.440 --> 0:05:34.200 really strong demand I mean much stronger than I think 0:05:34.240 --> 0:05:37.000 anybody thought was was going to be possible in things 0:05:37.040 --> 0:05:39.880 like PCs and like anything that was sort of work 0:05:39.920 --> 0:05:43.080 from home, study from home, play from home. Um. I 0:05:43.120 --> 0:05:45.200 think you also need to couple this with the fact 0:05:45.279 --> 0:05:48.080 that the industry itself, I mean, you know, remember SEMIS 0:05:48.080 --> 0:05:51.720 it cost billions of dollars dead capacity, and you know, 0:05:51.800 --> 0:05:55.080 historically they you know, they added capacity to demand that 0:05:55.120 --> 0:05:58.040 they saw and when demand was very very strong, much 0:05:58.040 --> 0:05:59.960 stronger than I just didn't have, the capacity was avail. 0:06:00.200 --> 0:06:03.000 And because that demand is still strong, you know, we're 0:06:03.000 --> 0:06:05.800 still shy, we're still short, we're still tight. Um. And 0:06:05.839 --> 0:06:07.560 so now you have to layer on on top of 0:06:07.600 --> 0:06:10.200 all that. Though you remember this, this stuff is never smooth, 0:06:10.240 --> 0:06:12.680 and when you have these kinds of problems, they do 0:06:12.800 --> 0:06:16.240 cascade and they cause more issues, and it's just it's 0:06:16.279 --> 0:06:18.039 just a big mess. I mean, it still is. And 0:06:18.080 --> 0:06:20.839 so it hasn't we haven't had time to actually bring 0:06:21.000 --> 0:06:24.880 enough capacity online to to alleviate things. And the demand. 0:06:24.920 --> 0:06:26.440 You know, in most parts of the market we can 0:06:26.440 --> 0:06:29.839 talk about where people are worried about demand maybe starting 0:06:29.839 --> 0:06:31.760 to roll over a bit, but in general, demand is 0:06:31.800 --> 0:06:35.560 still strong. Supply is still tight um and and we've 0:06:35.560 --> 0:06:38.840 still got problems and it hasn't it hasn't alleviated yet. 0:06:39.000 --> 0:06:41.160 And now you throw you know, the resurgence of Delta 0:06:41.200 --> 0:06:43.400 on top of us. And again you mentioned Malaysia. What 0:06:43.560 --> 0:06:45.080 they do A lot of Malaysia they do what's called 0:06:45.120 --> 0:06:47.040 back end. It's a lot of what what's called packaging, 0:06:47.800 --> 0:06:50.320 So they don't necessarily they don't have like semiconductor factories 0:06:50.320 --> 0:06:53.240 in Malaysia. They're not making like chips. Once you actually 0:06:53.279 --> 0:06:56.400 make the chip in the factory, you have to what's 0:06:56.440 --> 0:06:58.680 called packaging. You have to put the electrical leads and 0:06:58.720 --> 0:07:00.320 everything on it's such that you can take that chip 0:07:00.320 --> 0:07:02.360 and actually put it on a circuit board. So they 0:07:02.360 --> 0:07:04.400 do that kind of stuff assembly and testing and other 0:07:04.440 --> 0:07:07.600 things in Malaysia, and a lot of those issues were 0:07:08.200 --> 0:07:10.200 impacted in a lot of that stuff is done in 0:07:10.240 --> 0:07:12.800 Southeast Asia and and a lot of those, uh things 0:07:12.800 --> 0:07:15.040 were impacted by by COVID. So that's just something else 0:07:15.200 --> 0:07:17.440 icing on the cake on top of everything else and 0:07:17.480 --> 0:07:19.880 not getting better. Yeah, that was one of the things 0:07:19.880 --> 0:07:22.720 I remember we talked about one of our semi conductor 0:07:22.920 --> 0:07:27.520 episodes with Willie she at Harvard Business school. And obviously, 0:07:27.640 --> 0:07:31.600 just like in addition to the sort of technical challenges, 0:07:31.960 --> 0:07:36.880 any given ship has a highly globalized supply chain. And 0:07:36.960 --> 0:07:39.600 so as you mentioned, maybe it gets manufactured to wear 0:07:39.600 --> 0:07:43.239 in Taiwan, but then some sort of packaging happens in Malaysia, 0:07:43.360 --> 0:07:47.360 and so there must be to some extent issues that 0:07:47.400 --> 0:07:51.360 are the sort of generalized supply chain issues that are 0:07:51.360 --> 0:07:55.240 affecting more or less everything must have some having some 0:07:55.320 --> 0:07:59.120 impact on semi conductors specifically, it is and so you right, 0:07:59.160 --> 0:08:01.600 so semis are extremely global, and I forget, I forget 0:08:01.600 --> 0:08:04.920 how many different borders the average semiconductor crosses like in 0:08:05.000 --> 0:08:08.239 its in its lifetime, you know, from from initial production 0:08:08.280 --> 0:08:10.120 to actually getting sold to the end user. But but 0:08:10.160 --> 0:08:12.800 it's a lot, right, and you're right. They can be 0:08:12.880 --> 0:08:14.840 you know, it can be a US company that's using 0:08:14.880 --> 0:08:17.160 the Taiwanes foundry to make it, where it gets packaged 0:08:17.200 --> 0:08:20.320 in Malaysia and then it goes to a distributor in China, 0:08:20.400 --> 0:08:22.240 and like it's it's all over the place. So there's 0:08:22.240 --> 0:08:24.480 there's a lot of that, and there are big logistical 0:08:24.560 --> 0:08:27.400 channel the challenges that we're seeing right now. Shipping costs 0:08:27.440 --> 0:08:30.800 are actually getting getting much higher We've seen ports shutdowns 0:08:30.800 --> 0:08:33.080 in China and other places as are trying to control 0:08:33.120 --> 0:08:36.320 the spread of of delta um. We've seen container ships 0:08:36.360 --> 0:08:38.240 like like stacking up. I think maybe I can't remember 0:08:38.240 --> 0:08:40.800 a fifth if the sewers canal was blocked the last 0:08:40.800 --> 0:08:43.480 time we said that, I can't remember. But we're seeing 0:08:43.480 --> 0:08:45.760 tons of a logistical challenges. A lot of semi conductor 0:08:45.760 --> 0:08:48.040 comes in front. The other companies too, are starting to 0:08:48.080 --> 0:08:49.920 talk about this as well, like when when they talk 0:08:49.960 --> 0:08:52.040 on earnings, calls and everything. We're starting to see some 0:08:52.080 --> 0:08:54.200 of those costs go up and some of these supply 0:08:54.280 --> 0:08:56.240 chains are are are it's it's it's it's just a 0:08:56.280 --> 0:08:58.280 big hot mess. I mean, the whole thing, which I 0:08:58.280 --> 0:09:00.920 guess shouldn't really be a surprise is I mean, again, 0:09:00.920 --> 0:09:04.600 you know we had a global potential global catastrophe. You 0:09:04.640 --> 0:09:06.160 know that was it was causing. I'm part of me 0:09:06.240 --> 0:09:07.920 is like amaze that it's been as resilient as it 0:09:07.960 --> 0:09:11.720 has been. Frankly, but but it is, it is it 0:09:11.800 --> 0:09:14.640 is still causing problems and and and it's funny like that. Obviously, 0:09:14.679 --> 0:09:17.199 the question I get the most is how long is 0:09:17.240 --> 0:09:19.640 it gonna last? I wish I had an answer. I don't, 0:09:19.760 --> 0:09:22.160 you know. And it's really funny when you when you 0:09:22.160 --> 0:09:24.280 think about the stocks right and and and the companies, 0:09:24.320 --> 0:09:27.160 I mean, they're they're still putting up monster numbers. The 0:09:27.240 --> 0:09:30.040 sector right now, in terms of revenue is on track 0:09:30.120 --> 0:09:33.880 to grow probably twent this year and blow past five 0:09:34.280 --> 0:09:37.480 billion dollars for the first time in in in history. 0:09:37.679 --> 0:09:39.800 Um and and every quarter of the companies are putting 0:09:39.840 --> 0:09:41.559 up better and better numbers. And I would say investor 0:09:41.600 --> 0:09:45.079 conviction is getting less and less like the higher the 0:09:45.160 --> 0:09:47.560 numbers go, because we've all seen this number this movie before. 0:09:48.200 --> 0:09:50.679 We see this massive strong demand. Nobody really knows how 0:09:50.720 --> 0:09:52.040 much of it is real and how much of it 0:09:52.080 --> 0:09:54.640 is phantom. We talked about double ordering and everything else 0:09:54.640 --> 0:09:56.760 the last time it was here. Um, you know, this 0:09:56.880 --> 0:09:59.240 is when when things were uncertain, they order more and 0:09:59.240 --> 0:10:01.280 and and so like. It's it's funny the stocks haven't 0:10:01.280 --> 0:10:03.920 done much of anything, you know, even as the numbers 0:10:03.920 --> 0:10:05.400 have you continued to go up and up and up, 0:10:05.440 --> 0:10:07.880 because people still don't know how sustainable this, this this 0:10:07.960 --> 0:10:11.000 strong demand is so stacy. This is something that I 0:10:11.040 --> 0:10:13.240 wanted to ask you about. So you know, you mentioned 0:10:13.240 --> 0:10:17.520 this cascade effect early on and you didn't mention it specifically, 0:10:17.559 --> 0:10:20.320 but there is this bullwhip effect that seems to be 0:10:20.360 --> 0:10:24.240 at play where everyone was expecting demand to drop, companies 0:10:24.280 --> 0:10:29.080 cut orders, so the semiconductor manufacturers UM sort of backed 0:10:29.080 --> 0:10:32.520 off from production and then things turned out better than 0:10:32.720 --> 0:10:35.200 people had expected and there was loads of demand and 0:10:35.280 --> 0:10:39.079 the semiconductor companies have been trying to catch up ever since. 0:10:39.960 --> 0:10:42.520 But I guess my question is, like, one, is there 0:10:42.679 --> 0:10:47.960 something in particular about semiconductors and the manufacturing process that 0:10:48.080 --> 0:10:52.760 makes them more sensitive to the bullwhip effect um, this 0:10:52.880 --> 0:10:56.520 cascade idea. And then secondly, one of the things that 0:10:56.600 --> 0:10:59.640 comes into play when there's a shortage a supply shortage 0:10:59.679 --> 0:11:02.360 is every when starts stockpiling, right, So it's hard to 0:11:02.400 --> 0:11:06.199 tell what's real demand versus what's just people hoarding components 0:11:06.200 --> 0:11:07.600 because they think they're not going to be able to 0:11:07.600 --> 0:11:10.839 get them. So what's your sense of that at the moment, 0:11:10.880 --> 0:11:14.679 real demand versus stockpiloting. Yeah, yeah, so let's let's address 0:11:14.720 --> 0:11:19.079 the first question. They're like, why are semi's the bullwip right? Um? Yeah, 0:11:19.160 --> 0:11:21.400 it's there at the back of the supply chain. So 0:11:21.520 --> 0:11:24.200 then you think about them and I'll take a microprocessor 0:11:24.240 --> 0:11:26.040 for a PC just as a simple example, you know, 0:11:26.120 --> 0:11:28.480 like Intel or am D or whoever makes the processor, 0:11:29.080 --> 0:11:30.640 and then who does that get sold to, like a 0:11:30.679 --> 0:11:33.600 Taiwanese O d M maybe it's called Original Device Manufacturer 0:11:33.600 --> 0:11:36.240 who builds like a notebook computer and then they stick 0:11:36.280 --> 0:11:38.440 it on a plane or a boat, right, and they 0:11:38.520 --> 0:11:40.079 sell it, you know, they send it off to HP 0:11:40.240 --> 0:11:42.880 or or something like that, and then HP, you know, 0:11:43.000 --> 0:11:46.000 sells it to best Buy and then best Buy sells 0:11:46.000 --> 0:11:47.800 it to you or like. However, there's probably other steps 0:11:47.800 --> 0:11:50.280 in there as well. But there's a lot of points 0:11:50.320 --> 0:11:54.840 within that chain where you can get inventory building or 0:11:54.880 --> 0:11:58.160 bleeding or anything else. And and the fluctuations tend to 0:11:58.160 --> 0:12:01.080 magnify as you work from the front of the chain back. Um. 0:12:01.160 --> 0:12:02.959 This is a very well known that the thing you 0:12:03.559 --> 0:12:05.560 see it all the time, and the semis are at 0:12:05.559 --> 0:12:08.240 the back of that supply chain. So small fluctuations, even 0:12:08.240 --> 0:12:11.480 small fluctuations and end demand like at the customer level, 0:12:11.520 --> 0:12:15.520 can propagate backwards and have corresponding a larger impact like 0:12:15.559 --> 0:12:17.040 the farther back you go in the chain, and the 0:12:17.040 --> 0:12:19.080 semis are just at the back. And and remember I 0:12:19.080 --> 0:12:21.200 think we talked about this last time. But you know 0:12:21.320 --> 0:12:24.240 that the semi companies have to plan in this environment, 0:12:24.280 --> 0:12:27.480 and their actual my opinion at least, is that semi 0:12:27.480 --> 0:12:30.640 conductor company management teams their actual visibility into what their 0:12:30.720 --> 0:12:33.960 end customers are truly doing is precisely zero. They have 0:12:34.040 --> 0:12:36.120 no idea. They do the best they can. I'm not 0:12:36.160 --> 0:12:38.120 I'm not blaming them. It's not good or bad, right, 0:12:38.200 --> 0:12:41.960 it just is right. And the best companies out there, 0:12:41.960 --> 0:12:44.080 like A are willing to accept this and and deal 0:12:44.120 --> 0:12:47.960 with it. But their actual visibility is not great. But 0:12:48.080 --> 0:12:49.760 by the way, companies are trying to do some stuff 0:12:49.840 --> 0:12:51.600 right at you to to get to your second question 0:12:51.600 --> 0:12:54.960 around potential double ordering and stock piloting and so so. Yes, 0:12:55.000 --> 0:12:58.000 this this is a standard kind of behavior, and probably 0:12:58.000 --> 0:13:00.439 not just in semis. I mean this is normal human behavior, 0:13:00.480 --> 0:13:02.800 like when you can't get something that you need, you 0:13:02.800 --> 0:13:04.880 tend to order more and again. This is a phenomenon 0:13:04.880 --> 0:13:06.640 known as double ordering. And I mean a simple example. 0:13:06.800 --> 0:13:09.800 Let's say you're making widgets and you need you know, 0:13:09.840 --> 0:13:12.960 a hundred semi conductors you know whatever, right, and your 0:13:12.960 --> 0:13:16.360 inventors says, okay, I can't, I'll give you ten. I 0:13:16.800 --> 0:13:19.000 can supply ten and i'll give you the other you know, 0:13:19.120 --> 0:13:22.280 ninety the you need, I'll give you those in fifty weeks. 0:13:22.280 --> 0:13:25.440 So your next step is to order a thousand semi 0:13:25.480 --> 0:13:28.120 coffer from wherever you could hope to cobble them together 0:13:28.960 --> 0:13:30.679 on the hope that you can build up the hundred 0:13:30.679 --> 0:13:33.000 of leading and then you cancel all the other orders. Right, 0:13:33.360 --> 0:13:35.439 And so what semi conduct investors tend to watch for 0:13:35.559 --> 0:13:37.839 that this is a fundamental phenomenon as lead times like 0:13:37.880 --> 0:13:40.600 how long does it take to get the product after 0:13:40.640 --> 0:13:42.400 you order it, and those lead times are stretching out. 0:13:42.440 --> 0:13:43.920 What what what investors tend to watch for is when the 0:13:44.000 --> 0:13:46.679 lead times start to pull back in because that's usually 0:13:46.679 --> 0:13:48.920 when the cancelations start to happen. And so what a 0:13:48.960 --> 0:13:50.959 lot of companies are doing right now is they're actually 0:13:51.000 --> 0:13:53.480 doing things like putting in long lead time orders non 0:13:53.520 --> 0:13:57.520 cancelable orders, for example. Generally in the space historically that 0:13:57.559 --> 0:14:00.439 you didn't do that, there were no penalties to cancel orders, 0:14:00.559 --> 0:14:03.320 um companies. Now some companies are starting to put things 0:14:03.320 --> 0:14:06.839 like non cancelable orders. Other companies are parsing their orders. 0:14:06.840 --> 0:14:09.520 It's like, well, I know this, customers ordering a hundred parts, 0:14:09.559 --> 0:14:11.360 but I think they only need thirties, so I'm gonna 0:14:11.360 --> 0:14:13.880 only ship them thirty. Right. We're seeing some of that 0:14:13.960 --> 0:14:15.960 as well, and so the companies are doing the best 0:14:16.000 --> 0:14:18.160 they can in this environment to try to manage through. 0:14:18.160 --> 0:14:21.440 It is their stockpilot going, undoubtedly their stockpilot. I don't 0:14:21.440 --> 0:14:23.800 see how there couldn't be. Can you measure it? No, 0:14:24.000 --> 0:14:28.440 it's hard. So and I'll give you an example, like 0:14:28.480 --> 0:14:30.560 there there are some cases where, again you go, look 0:14:30.600 --> 0:14:33.320 at the auto vendors, even if they're stockpiloting, and whether 0:14:33.520 --> 0:14:35.240 they may be stocked by some much, but we were 0:14:35.240 --> 0:14:39.720 still seeing actual production cuts. So clearly, you know, even 0:14:39.760 --> 0:14:42.080 if they're they're stockpiling some parts, clearly they don't have 0:14:42.240 --> 0:14:43.920 enough of what they need to build the cars that 0:14:43.960 --> 0:14:46.960 they want. Right, So we're still seeing some some some 0:14:47.080 --> 0:14:50.720 primary examples here of situations where actual shortages, where the 0:14:50.720 --> 0:14:52.720 shortages still seem to be real, because we wouldn't be 0:14:52.720 --> 0:15:12.120 having actual production cuts if they didn't have actual shortages. Obviously, 0:15:12.320 --> 0:15:14.920 this is what you sort of described is going on 0:15:15.040 --> 0:15:18.040 in a range of industries. Are we gonna hit one day? 0:15:18.120 --> 0:15:20.560 And could this be a source of investor concerned? We're 0:15:20.600 --> 0:15:22.880 like we wake up and there is just a crazy 0:15:23.440 --> 0:15:27.560 blood of chips because so many entities or is it 0:15:27.680 --> 0:15:31.960 so is capacity so constrained generally that it's just hard 0:15:32.000 --> 0:15:35.600 to imagine there ever being a point where there's a 0:15:35.680 --> 0:15:40.120 huge oversupply. I mean never never say never, right, and 0:15:40.160 --> 0:15:43.120 the normal practices, Yeah, you'd wake up one day and 0:15:43.120 --> 0:15:45.000 you'd see a glut that that is normally how this 0:15:45.040 --> 0:15:47.760 would happen. And again, like this is why investors are worried, 0:15:47.760 --> 0:15:50.120 and this is why even though the numbers are going up, 0:15:50.680 --> 0:15:52.800 the stocks aren't really going up all that much. Multiples 0:15:52.800 --> 0:15:54.760 are coming down, and people are worried. You know that 0:15:54.840 --> 0:15:57.440 we're you know, getting closer to peak, right, And I 0:15:57.440 --> 0:16:00.480 guess mathematically, like by definition, we're getting close to peak 0:16:00.480 --> 0:16:02.840 every day. At the same time, we could be quote 0:16:02.880 --> 0:16:05.120 unquote post to peak for quite some time, right, because 0:16:05.160 --> 0:16:07.040 as long as this stuff's working. Again, the other thing 0:16:07.040 --> 0:16:09.400 you need to remember with with this is even though 0:16:09.440 --> 0:16:11.400 demand is really strong, I mean like you need, you 0:16:11.440 --> 0:16:14.160 need everything. So that's the thing is like the auto values. 0:16:14.160 --> 0:16:15.720 See I'll pick on the auto vendors again, like I 0:16:15.760 --> 0:16:18.160 mean they could be getting percent of everything they need, 0:16:18.200 --> 0:16:19.800 but if they don't have the five percent that they 0:16:19.960 --> 0:16:22.680 that they need they can't chip the car, right, And 0:16:22.720 --> 0:16:24.760 you could have a situation where like you have auto 0:16:24.840 --> 0:16:27.600 vendor A you know they have and they're they're short 0:16:27.600 --> 0:16:30.960 five percent. An auto vendor V hascent what they need 0:16:30.960 --> 0:16:34.760 in their short five percent, but it's a different five percent, right, Um, 0:16:34.920 --> 0:16:36.920 so that maybe something what we're seeing right now is 0:16:37.000 --> 0:16:38.640 like I I don't know, like at some point we 0:16:38.920 --> 0:16:40.720 may get a glot and now. At the same time, 0:16:42.040 --> 0:16:44.200 you can also argue that like post COVID, some of 0:16:44.240 --> 0:16:46.240 this demand is real and so like like I'll look 0:16:46.280 --> 0:16:49.360 at PCs for example, PCs right now we're incredib have 0:16:49.440 --> 0:16:51.760 been incredibly strong. I mean we were doing two hundred 0:16:51.760 --> 0:16:53.680 and fifty to two hundred and sixty million PCs a 0:16:53.760 --> 0:16:58.920 year pre COVID, Like we did three hundred million one 0:16:59.000 --> 0:17:00.560 right now we're on track to do probably close to 0:17:00.600 --> 0:17:02.680 three fifty, which would sort of match the peak in 0:17:02.720 --> 0:17:06.400 the industry, which is in and there's a big controversy 0:17:06.440 --> 0:17:08.520 in PC PCs. Right our PC is gonna grow next year, 0:17:08.520 --> 0:17:10.879 they're gonna be down or like whatever. But even if 0:17:10.920 --> 0:17:13.000 they're down, they're probably not going back to to fifty, 0:17:14.359 --> 0:17:16.480 right probably not like we I could argue that there's 0:17:16.480 --> 0:17:18.720 a structural case. I mean, like like whatever the normalized 0:17:18.760 --> 0:17:20.480 run righted pieces ought to be, it's probably higher than 0:17:20.480 --> 0:17:22.720 it was pre COVID. And you can make that argument 0:17:22.720 --> 0:17:24.840 about a number of event markets. And so even if 0:17:24.880 --> 0:17:27.040 we get a glut, some of the things we we 0:17:27.160 --> 0:17:30.320 probably had pulled forward in digitization and everything pre COVID 0:17:30.760 --> 0:17:33.720 or since pre COVID, and we've got more people doing remote. 0:17:33.760 --> 0:17:35.320 Remote work is going to be a thing from now on, 0:17:35.440 --> 0:17:37.000 like whether or not, like people start to go back 0:17:37.000 --> 0:17:39.399 to the office is more. Um, I could argue that 0:17:39.520 --> 0:17:42.200 some structural level event things should be higher, you know, 0:17:42.240 --> 0:17:44.840 in terms of capacity. I think Tracy, you asked during 0:17:44.880 --> 0:17:47.920 the intro, why isn't the semiconductor industry added capacity? It 0:17:48.040 --> 0:17:50.840 just takes time, right, They're all trying. I mean you 0:17:50.880 --> 0:17:52.560 can go look at like this the Semi cup guys 0:17:52.640 --> 0:17:54.600 like like way for fab Equipment w f E is 0:17:54.680 --> 0:17:56.800 is going through the roof right now, and you've got 0:17:56.880 --> 0:17:59.959 big forecast from from big companies, you know, throwing out 0:18:00.080 --> 0:18:02.280 big numbers in terms of what they're planning on spending 0:18:02.320 --> 0:18:05.200 over the next few years. Capacity probably will get added. 0:18:05.240 --> 0:18:07.280 It just takes time. To get added. So the worry, 0:18:07.359 --> 0:18:09.760 obviously is that capacity comes online right when the man 0:18:09.840 --> 0:18:11.959 starts to roll off, and I don't know what it's 0:18:11.960 --> 0:18:14.320 going to look like. I guess, well, this year will 0:18:14.359 --> 0:18:16.920 probably be fine. Still in terms of the fundamentals and numbers, 0:18:16.920 --> 0:18:19.120 we'll see what two and twenty three look like. Those 0:18:19.160 --> 0:18:20.880 are the kind of time frames we're probably talking about 0:18:20.880 --> 0:18:23.920 in terms of supply coming on UM and we'll see 0:18:23.960 --> 0:18:26.280 how well it is to well mactually is to demand 0:18:26.320 --> 0:18:29.240 like when it doesn't. So I wouldn't expect this to 0:18:29.320 --> 0:18:33.080 make a massive difference to the supply demand imbalance. But 0:18:33.280 --> 0:18:36.120 what are the chances that you start to see customers, 0:18:36.240 --> 0:18:40.160 the people who are actually ordering chips just back away 0:18:40.440 --> 0:18:44.159 or decide they're going to design more analog stuff, um, 0:18:44.600 --> 0:18:47.040 you know, in order to avoid this problem. And I'm 0:18:47.080 --> 0:18:50.080 thinking specifically, you know, last week, Bloomberg grand an article 0:18:50.119 --> 0:18:55.200 about air conditioning manufacturers dropping copper components because the price 0:18:55.240 --> 0:18:57.639 of copper was so high, and they're all starting to 0:18:58.240 --> 0:18:59.640 not all of them, but some of them are starting 0:18:59.680 --> 0:19:02.560 to switch to aluminum. So I'm wondering, like, could you 0:19:02.680 --> 0:19:05.960 see a similar thing with semiconductors or is it just 0:19:06.320 --> 0:19:09.000 you know, pretty impossible given the nature of the types 0:19:09.040 --> 0:19:11.399 of electronics we're talking about. What do you mean like 0:19:11.480 --> 0:19:14.440 switching away from semi connectors to something else? Yeah, I guess, 0:19:14.520 --> 0:19:16.760 like I guess going analog. Right, there were like a 0:19:16.880 --> 0:19:18.960 few car companies that were saying they're going to like 0:19:19.359 --> 0:19:23.840 drop some of the complicated electronics in order to produce Well, 0:19:23.960 --> 0:19:25.960 we we are seeing some of that. So some of 0:19:26.040 --> 0:19:28.560 the car we seem like cars. I'll make it up, 0:19:28.600 --> 0:19:31.800 but like you know, shipping without you know, the the 0:19:31.880 --> 0:19:34.760 electronically controlled rear view mirror or stuff like that. Right, 0:19:34.800 --> 0:19:37.080