Tuesday, January 11, 2022
Key industries such as automotive and consumer electronics are hungry for semiconductors, but the global shortage persists, due to a number of factors, including the pandemic. At CES 2022, Steve Koenig, vice president of research for the Consumer Technology Association (CTA), shared his analysis on the vulnerability of the supply chain and identified two fixes to the semiconductor shortage.
On average, the lead time for semiconductors is about five and a half months, Koenig said, referring to LevaData’s latest figures. “Big brands can probably do okay, but […] that’s a long time to wait, especially if you are a small and medium sized business trying to produce a product,” he commented.
The chart below, covering the period from October 2020 to the first week of September 2021, shows lead times for a number of core components used in nearly all electronic devices. MCUs, MPUs, and diodes were among the first categories to see a sharp increase in lead times.
Levadata_Semiconductors Lead Times_Chip Shortage
At the time of publication in September 2021, and for the first time, LevaData observed a stagnation or decrease in lead times, especially in the categories that were causing lead times to increase.
The shortage will last through 2022, but it will be less severe than in the fall of 2020 or most of 2021, and it will not affect all chips, according to Deloitte’s December forecasts. By mid-2021, customers were waiting between 20 and 52 weeks for several types of semiconductors, resulting in manufacturing delays or shutdowns and lost revenue in the tens or even hundreds of billions of dollars. By the end of 2022, Deloitte said it expects these lead times to be closer to 10 to 20 weeks and the industry to be in balance by early 2023.
Rome wasn’t built in a day
There are two fixes —a short- and a long-term— to the chip shortage, said Koenig.
Covid-19 has accelerated the digital transformation of all aspects of our society, and there has been a widespread realization that the semiconductor industry is vital to the growth of the global economy. The latest industry forecast from the World Semiconductor Trade Statistics (WSTS) expects the global semiconductor market growth to rise from 6.8% in 2020 to an outstanding 25.6% in the year 2021, which corresponds to a market size of US$553 billion. This will be the biggest step-up, since a 31.8% increase in 2010, eleven years ago. The global semiconductor market is set to grow by 8.8% in 2022, according to WSTS.
To meet this surging demand, semiconductor manufacturers have strengthened their efforts and adjusted their manufacturing strategies. “Since last year, [they have been] trying to squeeze out more production volume from existing facilities” or “add a third shift so a lot of facilities have literally been working around the clock” or even “add on to existing production lines,” said Koenig.
In November, Bosch indeed announced plans to invest more than €400 million in expanding its wafer manufacturing fabs in Dresden and Reutlingen, Germany, and in its chip testing operations in Penang, Malaysia. In Reutlingen, near Stuttgart, Bosch intends to add more than 4,000 square meters to the current 35,000 square meters of clean rooms by the end of 2023.
“But folks, that’s really just shoveling against the tide,” Koenig said.
This is where the long-term fix comes into play. “We need to build more chip manufacturing facilities,” he said. “Some of the big semiconductor firms have announced their plans to put forward tens of billions, hundreds of billions of dollars in capex to build these new facilities.”
After three years of construction, Infineon Technologies inaugurated a €1.6 billion chip factory for power electronics on 300-mm thin wafers in Villach, Austria, in September 2021, three months ahead of schedule.
Also in 2021, semiconductor rivals TSMC, Samsung and Intel announced plans to expand their manufacturing capacity. TSMC and Samsung said they expect to plow $100 billion and $250 billion, respectively, over the next three years. As part of a revamped business strategy, Intel CEO Pat Gelsinger announced his intention to build new chipmaking facilities in Europe valued at up to $95 billion.
Similarly, Texas Instruments announced mid-November plans to begin construction next year on its new 300-millimeter semiconductor wafer fabs in Sherman, Texas. The site has the potential for up to four fabs over time, and construction of the first and second fabs is set to begin in 2022, the group said.
He concluded, “We are one typhoon or earthquake away from a major disruption in chipmaking for the world, so a greater diversity by the middle of the decade is probably a good thing.”
Nonetheless, as Koenig specified, “Rome wasn’t built in a day. Neither are chip fabs.”
In fact, he continued, “They take about two to three years, and you can’t put them anywhere.” The infrastructure requirements are monumental (e.g. electricity, wafer), and the equipment such as photolithography tools and wirebonders are complex and expensive. Besides, photolithography lead times are more than 10 months, and lead times for wirebonders, which are normally abundant, stand at over six months, according to Deloitte’s latest figures.
The chip will slowly alleviate over time, but Koenig thinks “we will exit somewhere around the middle of the decade, when a lot of these new facilities are coming online.” Ultimately, there will be greater geodiversity of semiconductor manufacturing facilities, “which is desperately needed because today, about three quarters of chipmaking is attributable to East Asia.”
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