https://www.argusmedia.com/en/news/2184341-viewpoint-no-quick-fix-for-semiconductor-shortage
The past two months have seen semiconductors suddenly become mainstream news as multiple automakers raised concerns about supply shortages while trying to ramp production back up.
Manufacturers across multiple industries — not just automotive — are now seeking to clarify the scale and potential longevity of a bottleneck emanating from a highly technical supply chain that has historically been little understood except by those close to it, with some analysts estimating that it might take several months for the shortage to ease significantly.
In the near term, some large consumers may well succeed in securing enough chips to meet their requirements, with certain automakers understood to be in talks with various potential suppliers — in some cases, going directly to the chip manufacturers rather than a third party.
Several semiconductor producers are trying to help companies find ways forward, and [Taiwan Semiconductor Manufacturing (TSMC) has more than doubled](TSMC) its capital expenditure budget for 2021 compared with 2016-19 as it strives to meet soaring demand.
"In view of dynamic ordering momentum and manufacturing plants running at good utilisation rates in the majority of product areas, we are making a slight upward adjustment to our outlook for the full year. We are increasing our investments in manufacturing capacity and bringing forward the starting date for the new power semiconductor plant in Villach to the last quarter of the current fiscal year," chief executive of Germany's Infineon, Reinhard Ploss, said yesterday.
But there will be no quick fix. "The semiconductor industry has worked to ramp up production to meet the steep jump in demand, but this supply-demand imbalance cannot be remedied with the flip of a switch," said Falan Yinug, director of industry statistics and economic policy at the Semiconductor Industry Association (SIA). "Semiconductor manufacturing is not suited to rapid and large shifts in demand, since it takes time to ramp up semiconductor production. Making a semiconductor is one of the most complex manufacturing processes. Lead times of up to 26 weeks are the norm in the industry to produce a finished chip," he said.
Last year's Covid-19 restrictions presented challenges for semiconductor manufacturers, along with their customers, who encountered lockdowns and supply chain issues. But overall the sector had another strong year, with global semiconductor sales rising to $439bn in 2020 from $412.3bn in 2019, according to the SIA, as strong demand from the electronics industry offset the drop in consumption by automakers.
And the underlying roots of the shortage run deeper than Covid, with the market for 200mm wafers in particular having already been tight before the outbreak of the virus. They are structural and likely to be fixed only through long-term investment and political will, not least because the semiconductor manufacturing chain — from raw materials such as silicon, gallium and germanium to the finished product — is global and will remain reliant for some time on collaboration between countries.
The significance of political will for this supply chain is clearly visible in the cases of TSMC and China's SMIC — two chipmakers that have spent the past year trying to carefully navigate the trade tensions between China and the US that restrict their access to customers and equipment.
Industry groups and lobbyists have long lamented the lack of investment and innovation in semiconductor manufacturing outside Asia, with bipartisan bills on the subject having struggled to gain momentum in the US in recent years. The US accounts for just 12pc of global chip production, down from 37pc in 1990 — although it is still dominant in design and research and development. Some progress towards increasing US federal incentives was made early this year, and industry participants hope that the current crisis will spur a fresh wave of interest from the private sector as it comes face to face with the implications of wanting ever-more-sophisticated electronics without the manufacturing capacity to match.
"I think this will drive the automotive market to see how important semiconductor technology is to their interests," US-based GlobalFoundries' chief executive, Mike Hogan, said last week, adding that he expects that the crisis will result in the automotive sector working more closely with foundries.
Of further note is the fact that the semiconductor industry is going through a period of rapid innovation — in addition to the pressures of just ramping up volumes — as increased electrification and the advent of 5G and the Internet of Things continue to push the demands placed on electronic components and their performance. Scaling up production of newer chips and wafers economically is challenging and takes time, as evidenced by efforts made in the past two years to cut production costs for gallium-nitride semiconductors.
And the long-term demand outlook appears increasingly bullish with the evolution of technologies such as self-driving cars. China's Sinolink Securities estimates that the value of semiconductors used in each level 5 self-driving electric vehicle will be more than 10 times the value of semiconductors in regular gasoline cars of 2020, signalling that investment in new chip manufacturing capacity will be required to cater to the soaring requirements projected for the years ahead.