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Mahesh

19/04/22 22:01 PM IST

Shortage in semiconductors

  • WHAT
  • WHY
  • WHEN
  • WHERE
  • WHO
  • HOW
WHAT ARE SEMICONDUCTOR CHIPS?
  • Integrated into complex, microelectronic circuits, semiconductors enable functions such as high-computing, operations control, data processing, storage, input and output management, sensing, wireless connectivity, improved efficiency and power management — all this at a viable cost.
  • Rapid innovation has enabled the semiconductor industry to produce exponentially more advanced products at a lower cost — a principle referred to as Moore’s law.
  • These tiny integrated circuits, packing billions of electronic components in a few square millimetres bestow ‘state-of-the-art’ status to everyday electronic devices, ranging from electronics & automotive to life-saving pharmaceutical devices, household appliances, smartphones, ATMs, eCommerce, clean energy products and equipment, among countless other applications.
  • In fact, a single smartphone today has far more computing power than the computers used by NASA in 1969, to land man on the moon.
  • What is more, almost all emerging technologies such as AI, cloud computing, quantum computing, advanced wireless networks, blockchain applications, bitcoin mining, 5G, IoT, self-driving vehicles, drones, robotics, gaming and wearables are all powered by these discrete, yet highly sophisticated semi-conductors. According to Juniper Research’s latest report, the number of IoT devices alone, by the end of 2021 will reach 46 billion.
  • Each one of these devices will be powered by semiconductors.
  • Semiconductors are critical for high-computing applications in the electronics and manufacturing industries, agriculture, healthcare, infrastructure, entertainment, telecommunications, transportation, energy management, military systems and space to name just a few.
Why was there a shortage in semiconductors?
  • The trigger point was the beginning of the Covid-19 pandemic and the subsequent lockdowns across the world that forced chip-making facilities to shut in countries like Japan, South Korea, China and the US.
  • A key feature in a chip shortage is that it almost always causes cascading effects, given that the first one creates pent-up demand that becomes the cause for the follow-up famine.
  • According to a report by Moody’s Analytics, palladium and neon are two resources that are key to the production of semiconductor chips.
  • Now that Russia supplies over 40 per cent of world’s palladium and Ukraine produces 70 per cent of neon, “we can expect the global chip shortage to worsen should the military conflict persist”.
  • Taking from past events, the report noted that during the 2014-15 Crimea invasion, neon prices went up several times over, serving an indication of the seriousness of the current crisis for the semiconductor industry.
Global Chip Crises
  • The widespread global chip shortage resulting from the COVID-19 crisis has thrown up vulnerabilities in the global semiconductor supply chain and many technologies and products essential to our daily lives have been put at risk.
  • The principal reasons for this shortage include inadequate investment in wafer capacity in the preceding years, supply chain disruptions owing to the Covid-19 pandemic, rising demand from new technologies such as AI and EV and greater need for work from home (WFH) products.
  • In addition to all of this, there is the drought in Taiwan (water rationing in some of the world's biggest and most advanced high-tech foundries that are dependent on water-intensive manufacturing processes) and growing geopolitical uncertainties, with regard to trade with China.
When will the global chip shortage end?
  •  Gartner has estimated that the semiconductor shortage will extend well into 2022 and has warned that there could be a year’s lead time for wafer orders.
  • Forrester said it expects the chip shortage to continue through 2022 and into 2023.
  • Supply will grow “from older chip fabs and foundries running processes far from the cutting edge and on comparatively small silicon wafers,” wrote the IEEE.
  • More than 40 companies will increase capacity by more than 750,000 wafers per month to the end of 2022, the IEEE said.
Applications
  • Starting with healthcare which is top-of-mind — semiconductors are integral to applications in clinical diagnostics, treatment and post-recovery interventions. Semiconductor-enabled equipment such as magnetic resonance imaging (MRI) machines, pacemakers, blood pressure monitors, blood gas analysers, wireless patient monitors and ventilators are saving lives every day. Several surgery procedures are being revolutionized through the use of chip-enabled robotic surgical systems.
  • For Covid-care alone, testing equipment, oxygen monitors and almost every life-support system is reliant on semiconductors.
  • In addition, the disbursal of vaccines across countries, receiving app-based certifications, drone-delivery of life-supporting medicines, a steady flow of data to the Covid war rooms — these are all riding on silicon wafers.
  • Market research predictions indicate that web-integrated wireless healthcare devices, wearables and 3D printing of organs and medical devices that ride on semiconductors will be key factors that ensure new and creative ways of providing healthcare in the future.
  • The global automotive semiconductor market, valued at USD 48.13 billion in 2020, is expected to reach a value of USD 129.17 billion by 2026.
  • Auto manufacturers are incorporating vehicle electrical systems that require power diodes and voltage regulators of exceptional reliability.
  • Automotive semiconductor ICs with different functionalities are used in various automotive offerings — like navigation control, infotainment systems, and collision detection systems.
  • A modern connected, autonomous car can easily have more than 3,000 latest technology-featured chips.
  • In the case of the present pandemic enforced ‘remote everything' — be it business, learning, entertainment or catching up with friends and family, semiconductors underpin the technology infrastructure necessary for maintaining communication networks, outside the traditional brick and mortar setting.
  • During this pandemic, organisations have been able to smoothly move their operations online and allow individuals to work remotely and safely without interruption, thanks to digital, semiconductor powered devices and technologies.
  • This digital transformation has opened up a new world full of opportunities for the semiconductor industry.
Where Chip famine had impacted ?
  • Consumers of semiconductor chips, which are mainly car manufacturers and consumer electronics manufactures, have not been receiving enough of this crucial input to continue production.
  • Chip shortage is measured in chip lead time, which is the gap between when a chip is ordered and when it is delivered.
  • According to a Bloomberg report, which quoted research by Susquehanna Financial Group, the chip lead time increased to 17 weeks in April, from around 12 weeks in the beginning of 2020.
  • Also, with just-in-time deliveries, carmakers typically kept low inventory holdings and relied on an electronics industry supply chain to feed production lines as per demand.
  • There were two reasons for this: a steady decline in input prices and improvements in the processing power of chips.
  • The number of transistors mounted in IC circuit chips has doubled every two years.
  • Notably, the increase in chip consumption over the last decade is also partly attributable to the rising contribution of electronic components in a car’s bill of materials.
  • Electronic parts and components today account for 40% of the cost of a new internal combustion engine car, up from less than 20% two decades ago. Chips account for a bulk of this increase.
Who mainly helps in chipmaking?
  • Neon gas is used in the photolithography process that is the most common method for fabricating integrated circuits.
  • Specifically, the neon gas is used in the laser machines that carve the integrated circuits. But for use of neon gas in the semiconductor industry, the gas has to reach 99.99% purity levels — which makes it a rarity.
  • More than half of semiconductor-grade neon comes from Ukrainian companies Incas and Cryoin.
  • Palladium is used for multiple purposes in semiconductor and electronic manufacturing.
  • It is used to coat electrodes that help control flow of electricity.
  • It is also used in plating of microprocessors and printed circuit boards — which is an essential process of chip making.
  • Russia accounts for nearly half the global supplies of palladium and the multiple trade sanctions on Moscow threaten to constrain the availability of the element.
Chip Production
  • Chip production itself is a complex process that involves dependencies across several countries.
  • From chip design to sourcing basic raw material, to fabrication, assembly, testing, packaging, storage and final delivery of semiconductors that are customised for use in different industries the process can involve more than 1000 steps and 70 country border crossings.
  • At present, the know-how and capabilities to execute from alpha to omega lie with specialised global leaders like Intel, TMSC and Samsung and a few others.
  • In the current global scenario, by virtue of its world-class universities and engineering talent as well as its market-driven innovation ecosystem, the US provides most of the R&D-intensive activities, such as electronic design automation, core intellectual property, chip design and advanced manufacturing equipment and capital investment.
  • Countries like Taiwan, China and South Korea lead the way in wafer fabrication, functions that require huge capital investments, robust infrastructure and skilled manpower. Taiwan is also the leader in the assembly, packaging and testing functions of semiconductors, followed closely with China and Malaysia- services that are relatively less skill and capital intensive.
How long will the semiconductor shortage last?
  • The answer to that question is a function of two variables — the existing stockpiles of these raw materials with chip manufacturers, and the time for which the crisis in Ukraine prevails.
  • “Granted, technology has improved significantly since 2015 and chip-making companies have stockpiled resources owing to elevated demand during the pandemic, but inventory can only last so long.
  • If a deal is not brokered in the coming months, expect the chip shortage to get worse and for industries highly dependent on them to be similarly affected.
  • This means significant risks are ahead for many automakers, electronic device manufacturers, phone makers, and many other sectors that are increasingly reliant on chips for their products to work,” Moody’s Analytics noted.
  • According to a Reuters report, even as estimates on how much neon chipmakers have stockpiled varies widely, consensus is on the fact that production could be hit if the conflict goes on.
  • “If stockpiles are depleted by April and chipmakers don’t have orders locked up in other regions of the world, it likely means further constraints for the broader supply chain and inability to manufacture the end-product for many key customers.

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