AI CHIPS Foxconn warns of AI chip shortage

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Foxconn, the world's largest contract manufacturer of electronics, is facing an impending shortage of AI chips, highlighting the need for new manufacturing facilities. This situation emphasizes the growing gap between the rising demand for specialized AI chips and the current supply.

Taiwanese chipmaker Foxconn is to the electronics industry what Taiwan Semiconductor Manufacturing Co. (TSMC) is to the chips market; it’s the world’s largest contract electronics maker and assembles the majority of iPhone stock for Apple. Although the company has been performing well this year, its chairman, Liu Young-way, said its server business is facing an AI chip shortage. Talking to reporters at Foxconn’s annual employee party in Taipei on February 4, Young-way said, “When it comes up to keeping up with demand, perhaps there need to be new factories.”

What’s the deal with AI chips?

The demand for AI chips has skyrocketed due to the growing adoption of artificial intelligence, machine learning, and data analytics across various sectors, including technology, automotive, healthcare, and finance. AI algorithms, particularly those based on deep learning, require immense computational power, pushing the boundaries of traditional processors. The industry has witnessed a sharp rise in the adoption of specialised AI chips designed to handle the unique requirements of AI workloads as a result, leading to shortages as demand grows.

AI chips invariably require cutting-edge manufacturing processes that are only available in a few fabs worldwide. The move to smaller nanometer processes for more efficient and powerful chips further limits the number of manufacturers capable of producing these advanced semiconductors.Meanwhile, tensions between major economies, such as the United States and China, have led to trade restrictions and sanctions that affect the semiconductor industry. These geopolitical issues can limit access to certain markets or materials, exacerbating the shortage.

All these factors and more are the perfect recipe for future AI chip shortages as demand continues to grow.

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The year of the ‘AI chip race’

Foxconn’s chairman has also noted that only a few companies will be able to option enough NVIDIA AI chips to satisfy their demand this year and added that the global economic uncertainty will affect consumer demand, despite demand for AI servers remaining high. Foxconn’s announcement came as research organisation GlobalData predicts that 2024 will be the year of the so-called ‘AI chip race’—a natural transition from the so-called ‘AI arms race’ of last year, whereby companies scrambled to create their own large language models.

According to GlobalData’s report — 2024 Enterprise Predictions: Artificial Intelligence — this will be seen not only among large technology companies but also start-ups that seek to create proprietary chips. “As companies of all sizes work to reduce their dependence on Nvidia, alternative chip architectures will grow stronger, with CPUs, ASIC chips, and other designs gaining more ground,” the report stated, predicting that Nvidia will become less of a dominant force in the industry as a result. Meanwhile, Foxconn has said that it expects a drop in Q1 revenue compared to last year, reiterating that the first quarter is traditionally less impactful.

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