INDUSTRY Q&A
“My fear is that it’ll go back to how it was, where it sort of works until there’s a major perturbation, and then we’ll go through it all over again.” Alastair Hanlon, PragmatIC: “The semiconductor market is booming at the moment. There was a 25% growth in chip sales in 2021, following on from 11% growth in 2020 (IC Insights). The first driver was the increased demand for electronics as we all moved to remote working and bought new TVs etc. during lockdown. Followed by pent up demand in other sectors as they came back off hold 2021, e.g., automotive. “In addition, COVID has basically accelerated the digital transformation of many services, for example healthcare, supply chains, payments, which then creates more demand for cloud services, AI, 5G etc. With semiconductors being at the heart of all these systems, demand will continue to be strong for several years to come.”
Is there currently a global shortage of semiconductors? Mark Lippett, XMOS: “Yes, there is – and that’s no secret. A severe shortage of capacity remains across the board, although the situation is improving. Capacity in assembly and test, for example, is better than it was in the middle of last year.
“Regardless, at the moment, that means we’re heavily supply limited, which means spending much more time managing allocation scenarios – trying to serve customers as best as we possibly can. “Hopefully this leads to an appropriate amount of investment in the supply chain. But we also have to be mindful of the risk that overinvestment can lead to its own problems. Alastair Hanlon, PragmatIC: “Yes, there is currently a shortage in semiconductors, as anyone that is waiting for a car, PC graphics board, PlayStation 5 console and many other items can tell you. As well as COVID, semiconductor manufacturing facilities have been hit by fire, drought, snowstorms, and earthquakes. And we can’t rule out further COVID related disruptions this year.
“On top of all that there has been the restriction of the sale of semiconductor production equipment to China, which has severely curtailed its ability to make leading edge circuits as it had been gearing up to do. Even so SMIC, China’s largest chipmaker still managed to make record revenue in 2021. Semiconductor fabs are working flat out, but still cannot make enough to meet demand.”
When do you anticipate this global shortage ending? Mark Lippett, XMOS: “I don’t think we’re going to see any meaningful change this year. The earliest I’d expect a change in supply in demand would be the first half of next year, and it may well be later than that. “A big part of the time lag is simply the fact that, even for an organisation like TSMC, there is no simple solution to just spin up new fabs and more capacity. This is compounded by the fact that inventory is also node-dependent. You can’t repurpose a 28nm process for a 5nm
chip, and vice versa. The reality is that – although some aspects of the supply chain do operate on a Just-in-Time basis, at the beginning of the chain, there is a fabrication process that is a fixed-term, long-term manufacturing process.
“All of this means that there is going to be tension in the system somewhere. It’s only going to be resolved when we have enough inventory being provided at the top of the supply chain so that the customers at the end of the chain can return to a Just-in-Time environment.
“Of course, if everyone is talking about new fab builds them, you might end up with an oversupply situation. But currently there is a lot of talk, and not a lot of action. Alastair Hanlon, PragmatIC: “It is very difficult to predict when supply and demand will balance out again. Chip manufacturers have been announcing massive investments all through 2021. For example, in January, TSMC, the largest semiconductor manufacturer, announced a massive US$44bn to boost production capacity; Intel announced US$28bn and Samsung US$44bn. Eye-watering amounts. But with fab utilisation running at over 90% of capacity, addressing the rest of the shortfall will not be easy.
“It will be possible to add some additional capacity into existing plants, but the majority will need to come from completely new fabs, which take years to build and commission. Ironically, the shortage of chips also affects the production of the very equipment required to make semiconductors, further compounding the problem.”
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“It will be possible to add some additional capacity into existing plants, but the majority will need to come from completely new fabs, which take years to build and com- mission. Ironically, the shortage of chips also affects the production of the very equipment required to make semiconductors, further compounding the problem.”
“First of all, there was a gap in automotive ordering. The automotive industry has a tremendous amount of both political and economic leverage. In its efforts to catch up with orders, it was successful in getting an unfair share of supply.
“That caused a capacity issue that we’ve never really surfaced from. We’re beyond the point at which the primary issue is directly responsible for the challenges. Now it’s the reaction to that primary issue causing a different set of challenges. Alastair Hanlon, PragmatIC: “As noted earlier – the pandemic caused a significant increase in demand for semiconductors in certain markets. The increase in demand in 2020 was met in part by the diversion of capacity that was previously used to supply the automotive industry that had basically gone quiet during the first lockdowns. The automotive industry has for years worked in a lean manufacturing way, so that when it came back online, it could not refill its pipeline of components as the capacity was still being used to supply other markets. “As auto makers ramped up demand, lead times extended and everyone started negotiating to secure forward orders, putting further pressure on the semi supply chain.”
22 MARCH 2022 | ELECTRONICS TODAY
What have been the major contributing factors to this shortage? Mark Lippett, CEO, XMOS: “The history of the shortage, of course, goes back to the pandemic.
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