Do We See an End to the Chip Shortage?

Article By : Chip 1 Exchange

Despite chip manufacturers responding by increasing their production capacity, the shortage will persist well into 2023 as lead times for some components continue to extend.

As the world becomes more and more digital by the minute, the demand for chip-driven technology is on a surge. In a report shared by Deloitte, analysts expect the global semiconductor industry to grow by 10% in 2022.

That’s a growth of over $600 billion, driven by demand from industries that involve automobiles, mobile phones, appliances, computers, data centers, and more. The demand for chips is driven by turning our world into a smarter one, but can the industry keep up?

2020 saw the start of the shortage as the pandemic raged over major cities worldwide, crippling many businesses down to an economic standstill. Factories across several industries had to be shut down to manage the wave of infections and deaths. Conservative speculations regarding the demand for certain sectors led to the imbalance of supply and demand in the semiconductor supply chain and affected entire industries like automotive and consumer electronics. Consumer demand for various devices like mobile phones, computers, and more surged as people were forced to quarantine themselves at home to arrest the spike of infections.

Despite chip manufacturers responding by increasing their production capacity, the shortage will persist well into 2023 as lead times for some components continue to extend.

However, the industry is better prepared today than when it was first hit in the previous years. New fabrication factories set up in countries like Israel, Europe, United States, Japan, Singapore, and China will help continue to ease up the ongoing chip shortage, taking the pressure off Taiwan and South Korea.

The Deloitte report states an expectation for global wafers to be 50% higher by the end of 2023. This localization of manufacturing helps manufacturers logistically, too, keeping the steps between stages in manufacturing chips geographically closer to each other.

In other words, wafers fabricated in Taiwan and then shipped back to the U.S. for chip assembly will cut costs, travel time, and distance. Of course, as fuel costs are skyrocketing today due to the Russia-Ukraine war, the move to localize wafer production will help mitigate price increases and keep transport lead times manageable.

U.S. President Biden himself said, “We shouldn’t have to rely on a foreign country to protect and provide for our people. We need to sharpen America’s competitive edge by investing here at home.” as he signs an executive order trying to solve this crisis, ushering in a 100-day review of key products, including semiconductors. The Semiconductor Industry Association has suggested in a letter addressed to President Biden to include “substantial funding for incentives for semiconductor manufacturing, in the form of grants and /or tax credits, and for basic and applied semiconductor research.” The SIA letter includes top brass signatures from chip giants such as AMD, Intel, Qualcomm, On Semiconductor, NVIDIA, Broadcom, Cree, Analog Devices, Global Foundries, and more.

In 2022, companies seemed to be on the verge of a rebound. Germany-based semiconductor manufacturer, Infineon, claims that shortages involving their core product should be over by 2023 and plans to expand their production capacities with a $1.8 billion investment in Villach, Austria. South Korean giant, Samsung, announced plans late last year to invest in a manufacturing plant in Texas, following others like Intel and TSMC to expand capacity.

The way forward

The world is still recovering from the economic backlash that COVID has brought in. Although multi-billion-dollar investments will help stabilize semiconductor production’s incredibly delicate supply chain, any changes need to be scrutinized and planned thoroughly.

A study presented by the Global Semiconductor Alliance (GSA) and Accenture shows just how complex the entire process is. A single chip, for example, requires a few thousand steps in between to complete and has probably traveled more than 25,000 miles before finding its way into the appliances or devices we use.

This research study discusses how the semiconductor industry is a global ecosystem with each segment in its value chain averaging involvement from roughly 25 countries, “In fact, a semiconductor product could cross international borders approximately 70 or more times before finally making it to the end customer.

From chip design to wafer manufacturing to packaging and testing, and finally, to OEM assembly, the same study shows nearly 200 countries being involved. This includes those in the direct value chain and those countries tapped for support functions. Fully migrating just one of these segments into a new country doesn’t come easy, requiring a high level of expertise and an intense specialization. For example, the U.S. may have a lot of microprocessor research and development facilities but still lacks the photolithography equipment needed for more advanced processes, something Asia is known for.

So, what will be the way forward aside from increasing capacity? Although the billions of dollars invested in increasing capacity across the board help, it only patches up the holes of a slowly sinking ship.

Designing for resilience

Today’s tech changes at such a rapid pace that production barely has any time to catch up. Systems designers need to start looking at designing sustainably with disruptions in mind. Take a look at Apple or Google, which now have their chipsets to power their own devices – Apple’s M1 chip and Google’s Tensor for the Pixel. Should a calamity shut down a critical part of their supply chain to produce these chips, supplying any demand would become problematic with these chips at the heart of their products. Should any of the raw materials needed by either company start becoming scarce, releases of new batches of products will be compromised. Designing sustainably here would mean minimizing the impact of such disruptions by creating with flexibility.

Bottom line, preparing and designing with resiliency in mind will help mitigate (not totally) any adverse disruptions that may happen in the future. Especially in today’s volatile world, logistics and fuel costs are through the roof as a result of the ongoing Russia-Ukraine war, any escalations in the geopolitical realm could easily disrupt the delicate balance that is the semiconductor supply chain. Long-term, simpler product architectures have less risk of disruptions. Of course, eliminating these high-risk but necessary components will be impossible, its effects mitigated by being more flexible with the other parts surrounding the critical ones.

Prior to the war breaking out earlier this month, many chip makers began preparing ahead of time upon the annexation of Crimea in 2014. This resulted in a protracted exposure to the war (at least for now) and has afforded manufacturers the flexibility to prepare for when their stocks start to run out. A prime example would be the dependencies of many semiconductor manufacturers on raw components like C4F4 and Neon gasses coming from Russia and Ukraine.

Digital transformations

In 2021, Deloitte released a study of the digital transformation within the semiconductor industry. For an industry that drives the digital revolution for many industries worldwide, it is very rigid and unable to become flexible during major disruptions, as seen by this pandemic. This inability to adjust led many semiconductor manufacturers to believe that the shortage would be a short blip and thus became very conservative on their orders for components.

Various transformation segments are involved in what the new digital face of the semiconductor industry could be, as shared by Deloitte’s semiconductor sector consulting lead, Brandon Kulik. In one particular segment, Kulik mentioned semiconductor growth into the digital space. “If you can recode the software and you’re not completely stuck to every lithographic etch in the chip; you can build in and around the code that can make different use of that chip,” to quote Kulik, referencing new ways for existing chips to be used.

Pradeep Mishra describes the use cases for A.I. in an article discussing the merits of artificial intelligence in overcoming the ongoing chip shortage. An exciting possibility is using A.I. and Machine Learning within the value chain to help eliminate defects, improve inefficient processes and possibly increase production rates. Manufacturers can assess risks by identifying trends and reacting to them before adverse effects occur. Being proactive with artificial intelligence and production processes are further optimized through algorithms developed using A.I.  and could also be used to improve quality control and assurance within the production floor. To improve these processes and flows, the yield will inevitably go up and reduce the wastage of critical raw materials and components.

For an industry driving innovation onto the front door of the world, it also needs to adapt and be better prepared for these types of unexpected events. The worst of it all seems to be behind us. All we can do now is hope for global situations to improve further and for geopolitics to stabilize. Chip manufacturers have collectively done what they can, and for now, it’s a matter of time for supply to catch up.

Alea jacta est – The die is cast.

 

About Chip 1 Exchange

Chip 1 Exchange is an industry-leading, global, hybrid, franchise/full-service distributor of electronic components and peripherals. Being a hybrid distributor, not only does the company have a broad offering of franchise lines, but it is also one of the largest top-quality open market factory original suppliers of electronic components and peripherals in the world.

For more information, visit https://www.chip1.com.

 

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