While the world fixates on the current chip shortage, Asianometry argues we should be bracing for the inevitable, violent crash that follows. The piece cuts through the noise of government subsidies and corporate expansion to reveal a brutal economic truth: the semiconductor industry is structurally wired to overproduce until it collapses. For the busy investor or policy wonk, this is not just a market update; it is a warning that the current frenzy to build factories may be the very trigger for the next global glut.
The Mechanics of Overcapacity
Asianometry begins by dismantling the idea that the current shortage is a permanent state. The author notes that "semiconductor shipments can soar seventy percent one year and crash forty percent the next," highlighting a volatility that defies standard business planning. This isn't an anomaly; it is the industry's default setting. The core of the argument rests on the behavior of foundries—factories that manufacture chips for other companies. These entities face a paradox: they must spend billions to build capacity, yet they are terrified of losing market share if they don't produce at maximum volume.
The author explains that foundries are incentivized to "make and sell as many chips as possible to amortize out those fixed costs," even when demand softens. This creates a dangerous feedback loop where supply consistently outpaces demand. "The industries titans Samsung and TSMC value market share over profitability," Asianometry writes, noting that these giants will drive prices down to survival levels just to keep competitors out. This aggressive pricing strategy ensures that when the cycle turns, the "lower performers" are burned out, bankrupted, or acquired. The analysis is compelling because it shifts the blame from external shocks to internal industry economics.
"It is not like foundries and semiconductor companies have never heard of the business cycle but rather the nature and economics of the industry forced them to make like rabbits until the whole thing collapses."
Critics might argue that this model ignores the unique strategic value of supply chain security, which justifies some overcapacity. However, the author's point remains that financial incentives will always push production beyond what the market can absorb in the long run.
The Cost of Scaling and the Subsidy Trap
The commentary then pivots to the staggering costs involved in modern chip manufacturing, invoking "Rock's Law," which states that the cost of semiconductor tools doubles every four years. Asianometry illustrates this with stark numbers: a leading-edge factory that cost $1 billion in 2000 now costs nearly $20 billion. This creates a desperate need for volume. "Most foundries would like their new billion dollar fabs to make back their billion dollar investments but with the way the chip market are those fabs start losing value almost right away," the author observes. The marginal cost of making another chip is near zero, so the only way to survive is to flood the market.
This economic reality complicates the current wave of government intervention. The piece scrutinizes the massive subsidies proposed by the U.S., the EU, and China, warning that "subsidies create distortions." While the intention is to bring manufacturing home, the author questions the long-term viability of these projects without perpetual government support. "Unless the subsidies go on forever... the subsidized fab should have to stand up on their own two feet afterwards," Asianometry argues. The fear is that once the immediate crisis fades and automakers have their chips, the political will to fund these expensive facilities will evaporate.
"The subsidy's intention is to bring more manufacturing to the united states it looks like they will get your wish but unless the subsidies go on forever and they might the government spent money on dumber stuff before."
The author's skepticism is well-placed, yet it perhaps underestimates the geopolitical necessity of domestic production, which may justify losses that pure market logic would reject. Still, the warning about the "next crisis" shifting political attention away from chip subsidies is a vital consideration for stakeholders.
The Inevitable Bust
The final section of the piece connects the dots between the current construction boom and the coming bust. With TSMC, Samsung, and GlobalFoundries all expanding capacity simultaneously, the market is being flooded with potential supply. Asianometry points out the disconnect between this massive build-out and actual demand: "Did we really create tens of millions of chips worth of demand over the past year?" The answer, the author suggests, is no. The surge in demand was driven by panic buying and double-ordering, not a fundamental shift in consumer behavior.
The author highlights the absurdity of the current situation, noting that the Department of Defense buys $1.9 billion in semiconductors a year, yet a single new factory could theoretically produce chips worth $3.5 billion in just one month. This disparity underscores the fragility of the current boom. "I wonder how long this boom will last and when the bust will inevitably," Asianometry concludes, leaving the reader with a sense of impending correction. The analysis effectively frames the current shortage not as a problem to be solved, but as a precursor to a crash that is mathematically guaranteed by the industry's own expansion.
"The empire long divided must unite long united must divide the cycle."
Bottom Line
Asianometry's strongest contribution is the reframing of the chip shortage as a temporary distortion in a cycle that is structurally designed to overproduce. The argument's greatest vulnerability lies in its assumption that market forces will inevitably override geopolitical strategy, but the warning about the financial unsustainability of the current build-out is impossible to ignore. Readers should watch for the moment when inventory levels spike, signaling that the "rabbits" have finally run out of room to breed.