ST CEO Jean-Marc Chery talks about how visibility can help manage the current chip shortage and minimize its impact to customers.
The automotive industry is one of the biggest, if not the biggest, recipients of the impact of the current IC supply shortage—which, for its part, is one of the many unprecedented effects of the COVID-19 pandemic. A Reuters report cited consulting firm AlixPartners saying that the global semiconductor chip shortage will cost automakers $110 billion in lost revenues this year, up from an initial estimate of $61 billion. It added that the crisis will cause global carmakers to lose 3.9 million vehicles in production this year.
Nevertheless, while this is a big challenge right now, it also offers an opportunity—and a certain one at that. According to Gartner Inc., the global semiconductor shortage will persist through 2021 and is expected to be pushed out until the second quarter of 2022, while substrate capacity constraints could potentially extend to the fourth quarter of 2022. The lighter side of this, I think, is the assurance of strong demand within that timeframe. And that’s just for the current shortage and lead times. Surely, it will have a ripple effect on the coming new production in almost all industrial and manufacturing sector, especially now that more and more markets and economies are opening amid continuous vaccination.
“There is an important gap between the demand the semiconductor industry is facing since December last year, versus the manufacturing capacity the semiconductor industry has prepared and invested for 2021,” says Jean-Marc Chery, President and CEO of STMicroelectronics.
Speaking at a recent virtual media engagement, Chery noted that ST, based on the visibility they had around the third to fourth quarter last year, prepared to bill revenue of around $11 billion. “The demand now is above $15 billion,” he says. “For the industry, it is basically the same. The industry has prepared itself to bill $9.5 trillion revenue, while the demand was basically around 30–35% above this capacity. So, it is not a question of shortage. It is that everybody across the value chain—from electronics, OEM, EMS, customers both from standalone electronics and embedded electronics—did not prepare properly for this boom. This is the first point. Now, we have to manage this.”
And how is ST managing this? Chery notes that they reacted quickly by boosting their CAPEX from $1.5 billion to $2.5 billion. “Thanks to the fast reaction of ST, and the support from process equipment and assembly equipment makers, in order for us to increase our capacity. This is the reason why in April, I announced that the indication for the year will be above $12 billion plus or minus $150 million,” he explains. “We [quickly] reacted to increase the capacity immediately to support the market. However, the gap is still 25%. So, for the short term, there is no other way to manage [this despite] close relationships with all the customers, car makers, Tier 1s, and industrial OEMs, in order to prevent as much downtimes and shortage issues as possible, and manage the impact on our customers. So, our first priority is to manage the short term in order to avoid the structural damage to our customers.”
For the medium term—2022 and 2021—ST have been discussing with theirs customers about their initiatives based on the lessons learned, and how they can better plan in the future and give better visibility to the semiconductor supply chain in order to prepare with some flexibility.
“We know that the business can fluctuate, but at least we need to find a way where customers provide the visibility that the semiconductor can acknowledge to prepare with risk mitigated with capacity,” says Chery.
Chery highlights cycle time as one of their main challenges. For instance, the automotive industry has a cycle time of one day. To make electronic boards, the cycle time is one week—but the CAPEX is heavy.
“The cycle time to have new equipment for process is basically nine months; while for assembly, it is basically six months,” says Chery. “This is the business condition. We have to find a way to adapt the legacy business model of the car industry to be more aligned with material requirement planning, rolling visibility, and some flexibility in order to enable the semiconductor industry to plan. This is what we are doing with our customers now. We are clearly asking them their visibility for 2022 in order to plan our CAPEX. If the visibility is with zero reliability, there is no value. We need the visibility with certain reliability and with certain amount of flexibility.”
ST is an IDM (integrated device manufacturer) with 80% of production needs covered by internal wafer fabs and 20% covered externally, mainly with its Taiwanese and South Korean partners. For assembly and test, 70% are done internally while the remaining 30% done externally, mainly with Asian OSAT providers.
“We have to take into account and provide visibility to our manufacturing and technology service partners to help us better prepare for the industry,” notes Chery.
Positioning for Growth
Chery notes that they want to lead broadly in embedded electronics, and in the automotive and industrial sectors. “For personal electronics and communication infrastructure, we want to address them selectively,” he says. “This strategy will not change. We have prepared ourselves to continue to outperform the markets we serve. We are confident it is based on our go-to-market strategy, which is well-balanced between the top OEMs, mass market distribution, and the wide landscape of OEMs that are mainly in the field of industrial market. We do believe we have a good market strategy for having a good balance and continue to outperform the market. We have important programs with top OEMs, where we offer differentiated factors in order to help our customers to outperform. Also, thanks to our R&D and design level capabilities—we do believe they will boost growth in the future and help us continue to outperform the market.”
For manufacturing technology, the company has an aggressive roadmap to enable embedded processing solutions. “Internally, we will develop the next node of the 28nm FD-SOI, so we will have more aggressive nodes with better device performance,” says Chery. “In partnerships with TSMC and Samsung, we will adopt a more-aggressive CMOS technology for our industrial microprocessors.”
ST is also aggressively developing wide bandgap materials. “We are developing the next generation of BCD technology,” Chery says. “Now, the state-of-the-art for automotive is 110nm, and for consumer applications, 90nm. We will develop the next generation at 40nm. Last but not least, for MEMS and optical sensing solutions, we have a very aggressive roadmap to serve our customers.”
The company’s manufacturing infrastructures are currently at capacity. To address this issue, ST has been building a new 300mm fab in Agrate, Europe, with shipments of the first equipment expected to arrive by the end of this year. “We will start to install the industrial line across 2022 in order to support ST’s growth for the next three to five years,” says Chery. The company also has reacquired the 8-inch fab from Micron Technology in Singapore.