Semiconductor manufacturing has become incredibly complex and the effort it takes to get electronics in front of the end customer at a reasonable price and time-frame has been very challenging. For decades, many industry challenges have gone undetected in our daily lives but this year, the public has become more aware of the semiconductor industry and the manufacturing disruption caused by the global chip shortage and massive supply chain delays.
From industries like automotive, mobile, industrial and nearly 200 additional downstream sectors, many companies have felt the pinch of securing enough chips to meet customer demand for products. For example, when one singular chip is at risk, production of the entire end product is subject to delay.
The breadth and depth of the value chain
The semiconductor value chain is expansive but Syed Alam and Patrick Moorhead break down the players, places and partners in the journey.
No company can execute across the end-to-end semiconductor value chain. The development of the fabless/foundry model allowed companies to outsource intensive manufacturing. This model requires collaboration across thousands of suppliers around the world. For example, with IP and design from Silicon Valley, equipment from the US, Europe and Japan, specialty chemicals and gases from Europe and East Asia, manufacturing in East Asia and packaging, assembly and testing in Southeast Asia, this global dispersion complicates the development and manufacturing of a chip.
The flow of the value chain in the visual above is a simplified display of the global players involved for a semiconductor.
The collective value of companies across the global ecosystem enable the design, build and delivery of semiconductors. From natural disasters to global pandemics, understanding how international partners all contribute to the development of a semiconductor explains why the value chain is constantly evolving and the need for resiliency in it.
This example lists the countries and the capabilities they contribute to the semiconductor value chain ecosystem:
UK - Semiconductor IP houses license IP blocks to fabless firms
US - Fabless firms design complex chips with the support of EDA software
India - Design verification teams verify specifications and layout
US - OEMs lock in chip design for end products
Netherlands – Fab Capital Equipment make the process equipment used by fabs to manufacture chips
Germany – Gases, specialty chemicals and fab consumable suppliers equip fabs with key fabrication and facility cleaning materials
Japan – Materials companies form silicon ingots from pure silicon and slice into wafers
Taiwan – Foundries etch 60+ layers of transistors and interconnected wires onto wafer to develop integrated circuit (IC)
US – Test equipment firms design and manufacture equipment used by OSATs to test semiconductor chips
Malaysia – OSATs assemble, package, and test semiconductor chips
China – EMS players integrate ICs into OEM end product electronics
Demand for semiconductor chips in different industries increases with the development and production of new or enhanced end-application products that incorporate electronic components ranging from traditional applications such as data processing machines, electronic controls for engines and machinery and consumer electronics products to new applications of in-home appliances, medical equipment, and automobiles.
Computers, laptops and peripheral equipment are the largest market segment for semiconductors. These ICs range from memory storage chips to LEDs found in PC screens. Demand for these products experienced a spike due to the COVID-19 pandemic as employees and students worldwide were forced to at-home work and study.
The second largest market for chips is for those used in cell phones, wireless infrastructure and modems. The growth of network equipment in developing economies, the migration from 4G to 5G and growth in the smartphone market has boosted production by 24.1%. 5G is expected to be a major demand driver since new capabilities are needed for 5G smartphones.
With the continued focus on electric and autonomous vehicles, the auto market has the highest forecast growth of 12.4% by 2026. This is a prime example of an industry requiring increasingly sophisticated technology making it challenging for semiconductor companies to race to fulfill orders for new application-specific chips for the auto industry.
Impact of chip shortage on automotive
Let’s take a closer look at the automotive industry and the impact of the chip shortage on automotive as an example of an industry that was heavily obstructed by the global chip shortage.
Of 71.4M in lost automotive sales
At an ASP of $40K, it translates to this loss in automotive sales
Cars sit idle in lots
A complication of the semiconductor value chain is the semiconductor trilemma. This concept explains the trade-offs that push and pull against supply chain decision makers across the value chain.
The semiconductor supply chain trilemma is complicated by the fact that only two of three levers can co-exist at any point in time.
The COVID-19 induced chip shortage highlighted the weakest links of the semiconductor industry and it is crucial for companies to strengthen their resiliency of a broader and global collaboration among all ecosystem players for the value chain in the long-term.