As a result of the COVID-19 pandemic and the increased demand for all types of components, equipment and vehicles, the semiconductor industry is experiencing one of its longest lean periods, started in spring 2020 and still going on. According to multiple sources, the shortage of chips will continue in 2022, delaying the delivery of some components even until 2023.
The impact of this shortage, according to Venture Beat, is already being felt in all kinds of sectors of the electronic world. But it is not exclusive to it, since it also affects other sectors of consumer goods, and especially, the automotive sector. It is so strong, it will probably have a impact on company revenue of more than 500,000 million from 2020 to 2022.
Many believe that although long, this crisis will end and another similar one will not come. But according to Deloitte, there is a good chance over the next decade that some combination of events, including a global recession, a major weather event, and disruptions in a critical seaport area could occur at any time. or all at once. The chip manufacturing industry and supply chains, as conceived today, are not immune to big changes, making another shortage in the years to come inevitable.
Furthermore, the future shortage may be even greater and longer than this one, which is long overdue. And given the growing importance of chips in various sectors, the economic damage could be greater as well. For this reason, Deloitte has carried out a study to see what semiconductor manufacturers, distributors, customers and authorities can do to avoid another catastrophe of this magnitude. To begin with, it is clear that the problem is so great that no company, or any sector, can solve it alone.
Six semiconductor shortage crises in three decades
In the last three decades we have seen six lean periods of similar length or magnitude to the current one. Sometimes they occur or are amplified by extreme external situations, such as the tech bubble or the 2009 recession, but sometimes they arise for no apparent reason. Adding capacity to the chipmaking industry has always been expensive and complicated. It comes in waves driven by technology and market forces, and it takes a lot from the decision to build a factory until the factory is finished and production begins. So the question perhaps is no longer if there will be another crisis, but when and how serious it will be.
As for the detonator of the crisis that we are experiencing, it has been the Sales trigger when supply and demand are out of step due to poor communication in the supply chain. All market players need to do their part to mitigate its effects, and work continuously so as not to generate an excess situation either. According to Deloitte, companies should choose a specific action or a combination of them based on the role they play in the semiconductor ecosystem and value chain.
In fact, the sector is already committing to increase its production capacity to unprecedented levels. Investments by the top three manufacturers in this are likely to exceed 200 billion from 2021 to 2023, and could reach 400 billion by 2025. In addition, there are several governments that have pledged hundreds of billions more. Thus, Deloitte expects the production of 200-millimeter wafers to increase from 20 million in 2020 to 30 million by the end of 2023.
Capacity will grow for both the 200-millimeter and 300-millimeter wafers, which will improve to a level similar to that of the 200-millimeter, whose growth will come mainly from increasing the capacity of existing plants, and not from the construction of other new ones, in which, however, some 12,000 million will be invested between 2020 and 2022.
From a technological standpoint, capacity at the leading nodes and the most advanced 300 millimeter process nodes will grow faster than at the more mature process nodes. Of course, the demand is growing for both wafer sizes and in all process nodes, not only in the most advanced ones. It seems that increasing capacity by 50% in three years could prevent a future shortage, but it is not so clear.
The development of construction capacity at different points, key
It is clear that the chip sector should develop local capacity. Chip manufacturing is geographically limited and needs to spread across more regions. The 2020 level of concentration in East Asia, including Japan and China that manufacture almost 60%, has attracted the attention of the governments of the United States, the European Union and China, and there are already plans to build new plants in other areas, including Israel or Singapore.
But reversing the trend of the geographic concentration of semiconductor supply is tricky. There are some 400 facilities dedicated to its manufacture worldwide, and there are already plans to add new 300-millimeter factories by 2022, but only a dozen dedicated to 200-millimeter wafers in the same period. Some are in South Korea and the Taiwan area, and adding a couple dozen outside of these areas can help. But Deloitte points out that using new locations will only take the concentration in East Asia down a few points. Still, it will continue to produce more than half of all chips in 2023.
The semiconductor sector should also get rid of obstacles as a strategy. This must be done by all participants in the chip supply chain, from its buyers to its distributors and sellers. The rise in demand on the buyer side also needs to be stopped. Equipment manufacturers, distributors and customers are affected by this effect, in which communications between actors in each area in the supply chain are amplified by the valuations of demand signals. This must change.
Smart operations capabilities are vital to semiconductor manufacturing, but they are complicated and sensitive, as well as automated and driven by capital-intensive factories. Capabilities that facilitate digital process modeling, such as digital twins. Also, operations monitoring, factory operations synchronized with material availability, and responsive factory schedule settings enable plant operations teams to operate efficiently and have high asset utilization.
According to Deloitte, many manufacturers began their digital transformations in spring 2021. Continual innovation is necessary to be more adaptive to changes in the supply chain driven business. Everything will require close communication. Meanwhile, demand continues to grow as fast as the sector’s planned growth capacity. Among its drivers are 5G, Artificial Intelligence and machine learning, the intelligent edge and the Internet of Things.
In some cases, the problem of semiconductor shortages comes from the increased need to integrate increasingly powerful chips in products that many already use, but in others it also involves adding chips to products that did not have them before. And everything weighs on the sector, which has to multiply to try to balance the balance of supply and demand.