What’s harder to find than microchips? The equipment that makes them

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More than half the global semiconductor industry’s revenue comes from these older types of chips, says Wayne Lam, director of research at CCS Insight, a technology advisory firm. This, despite the fact that these chips are individually much less expensive than the high-end processors that are the “brains” of smartphones and laptops. A new, advanced Intel laptop processor chip costs hundreds of dollars. In contrast, many of these older-generation chips cost just a few dollars; some as little as pennies.

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These chips that use more mature technology go into cameras and other sensors in our phones and cars; power-handling electronics; the logic controllers of factory equipment; the chips that enable wireless communication. It’s a shortage of these chips that is at the root of shutdowns of automobile manufacturing and Apple’s inability to meet demand for the latest iPhone, alike.

The pandemic helped trigger current chip shortages, prompting both shutdowns of factories that are critical to the manufacturing and packaging of these chips and a surge in demand for work-from-home gear and other products that use them. But that is just part of the story.

A longer-term trend, of expanding and insatiable demand for microchips in every electronic device you can name, has for years been taking slack out of the supply chains for the equipment at the heart of the supply chain for microchips.

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It’s not just that so much of what we buy these days has a chip in it—it’s also that some of those things have many more chips than ever before. For Onsemi, the dollar value of microchips in an electric vehicle with a driver assist system is 30 times as much as the cost of the chips in a gas-powered vehicle without such a system, says Mr. El-Khoury. Chip demand also flows from the rise in popularity of mobile devices and the need for many more servers—aka cloud-computing infrastructure—to support it.

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As the chip shortage has grown acute, bidding wars for used equipment have spiraled, says Mr. Howe. For example, a Canon FPA3000i4, a piece of lithography equipment manufactured in 1995, which is used to etch circuits in chips, was worth as little as $100,000 in October 2014, and today goes for $1.7 million, he adds.

Potential buyers are now left with a difficult choice if they want to expand their capacity to make older chips: either pay exorbitant prices for old equipment, assuming they can even find it, or get on a waiting list for new equipment, which often stretches to six months and beyond.

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Even the companies that make chips are themselves affected by the chip shortage. Infineon, for example, has adequate capacity for making its own power-handling chips, but can’t get enough of the older-style microcontroller chips that its systems also require, and which it has long outsourced to third-party manufacturers like TSMC, says the spokeswoman.