UMC asked customers for the $3.5 billion cost of a new fab. GloFo and NXP came up with the concept of orders which could not be cancelled. Microchip, where orders are 50% more than it can supply, offered priority delivery to customers who signed orders which couldn’t be cancelled or changed for a year. Before the shortage, Microchip customers could cancel an order up to 90 days before delivery.
In an industry where double and triple ordering means that a shortage can turn into a glut overnight, it is how the industry protects itself against the consequence of over-spending on capex or new hires just as demand dries up.
