ASML, the sole producer of critical EUV lithography machines, said it anticipates chip shortages to persist for at least the next two years. The warning is said to stem from ASML’s reliance on its suppliers, including Germany’s Carl Zeiss, which provides essential lenses. Zeiss, in turn, has also been impacted by supply chain issues.

“Of course, we at Zeiss are also affected by the shortage of semiconductors and price increases for components in the photo sector,” a Zeiss representative told Amateur Photographer.

“They need to make significantly more lenses,” ASML chief executive Peter Wennink told Financial Times. But as Wennink explained, that requires them to “build clean rooms; they need to start asking for permits; they need to start organizing the building of a new factory. Once a factory is ready, they need to order the manufacturing equipment; they need to hire people. And then…it takes more than 12 months to make the lens.”

A spokesman for ASML declined a request further comment.

Wennink’s assessment of the supply shortage follows on the heels of recent announcements made by industry leaders to increase investments in fab capacity within the U.S. and E.U. Intel, for example, announced plans to invest €80 billion (approximately $88 billion) in semiconductor capacity in the E.U. to both strengthen the supply chain as well as lessen reliance on chip manufacturing within Asia.

“The recent chip shortage has reminded us of the risks of being too dependent on any one region in the short term; Today, 80% of chips are produced in Asia,” Intel CEO Pat Gelsinger said in a live webcast on Mar. 15, as reported by our sister publication, EE Times Europe. “Our landmark Pan-European investment addresses the global need for a more balanced and resilient supply chain.”

Yet it will be a long while before the global supply chain sees any return on these investments. The issue of rebalancing supply and demand also remains a valid concern. The reason being, explains Tirias Research founder and principal analyst Jim McGregor, is that new fabs could take years to come online, and the time and costs constraints in regard to producing newer chip generations remains a challenge.

“You have to understand we don’t build old fabs, we only build new fabs. All of the construction that’s going on or that’s planned from Global Foundries, TSMC, Samsung, Intel — it’s all for brand new fabs. They’re going to need new equipment. EUV is certainly a choke point, especially because ASML is the only one that builds EUV equipment, and these things are huge and expensive.”

McGregor agrees the supply crisis will persist at least for the next two years, possibly longer depending on how quickly fabs can manufacture newer chips to rebalance supply and demand.

“If you look at it from a broader sense, we have a shortage in semiconductors, period, for at least the next two years. It’s going to take that long to not only bring some of that new capacity online, but it’s also going to take a while to smooth out the demand. Right now, a lot of capacity shortages are in regards to the older generation; the older 2D semiconductor products such as 45nm, 65nm, and even I would say 28nm,” McGregor said.

“We need those products to move to new generations, to new technologies. A lot of the time people don’t want to move those products because its expensive, you don’t want to renew mask sets, you don’t want to requalify. But over the lifecycle, some of them will eventually go to a new generation. It’s going to take two years at best, as long as demand keeps up, for us to get to a point where we can actually balance supply and demand again.”

Yet capacity glut remains a relevant concern. Wennink assuaged worries of a possible oversupply in ASML’s 2021 Annual Report released last month (Feb. 9). In the report, Wennink detailed that the combined efforts of the U.S, E.U. and China, as well as Japan and South Korea are expected to almost double the industry’s 2021 annual capital expenditures of $150 billion. This, Wennink says, has “created concerns about potential oversupply”.

He argues that “the significant growth prospects of the semiconductor industry do require substantially more capacity and that given the high levels of capital expenditure to support all this, industry partners will apply sufficient effort to sustain an accessible and efficient innovation ecosystem.”

While the possibility of an oversupply isn’t set in stone, it’s certainly feasible; especially when you consider the geopolitical and economic impacts on the chip industry, McGregor argues.

“There is definitely a possibility of an oversupply. Even if the demand kept up, assuming there’s no economic fallout, no industry correction, we could still be heading there, especially if you consider the fact that Intel’s currently trying to build four brand-new fabs, as well as TSMC, Samsung and others,” McGregor said. “If you add up all the capacity that could potentially be coming online, we could overshoot it, and it wouldn’t be the first time. Micron’s Lehi fab sat vacant for over a decade. Intel’s Fab 42, which is now in full production, also sat vacant for over a decade. It happens, and there’s no doubt it could happen again.”

“However, part of this is not just catching up with demand. Part of it is rebalancing manufacturing. I raised this point five years ago; I said, ‘Think about the fact that we have over 50 percent of our semiconductor manufacturing capacity in regions that are threatened by communist regimes.’ That’s a scary thought, and it’s even scarier today than it was five years ago. Part of this is also rebalancing because geopolitics has gone nuts in the last couple years, and we don’t know what’s going to happen. Even if we overshoot demand, it’s still going to be important that we have more manufacturing capacity in other regions, especially Europe and North America.”

By: DocMemory
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