A closer look at COVID-19 and the semiconductor shortage saga in 2021
Article By : Majeed Ahmad
While IC shortage has been making headlines throughout 2021, it's important to take a closer look at the root causes of this chip crunch.
Chip shortage made headlines across the globe, letting even people outside the technology business know the worth of semiconductor devices. Now, as the new year dawns, the million-dollar question is how this shortage will pan out in 2022 and beyond.
While trade media has been busy tracing logistics vulnerabilities in the semiconductor supply chain labyrinth, the truth is that this crisis was waiting to happen after the fall of the integrated device manufacturer (IDM) model. The Covid 19 pandemic was more or less a trigger to this unprecedented disaster.
As Arteris IP president and CEO Charlie Janac recalls, there have been shortages before, but not due to such imbalance between new semiconductor-driven applications and business models with relatively inadequate investment in foundry supply. It is worth mentioning that the Fukushima earthquake and tsunami in 2011 was a little preview of weather-related supply disruption. However, the resulting semiconductor shortage at that time was not nearly the scale of what we have seen now.
Here, before we delve into how this IC shortage is likely to pan out in 2022 and beyond, it’s important to take a closer look at the root causes of the chip crunch. Let’s begin with a quick recap of what caused this shortage in the first place.
IC shortage recap
According to Laurie Balch, research director at Pedestal Research, the first trigger in the chain of events was the worldwide shutdowns in March 2020. The impact of this disruption cannot be overstated; when semiconductor fabs shuttered, so did all production.
Factories, including semiconductor fabs, keep a tight rein on expenses through practices like just-in-time (JIT) manufacturing. It means materials and supplies are managed carefully not to tie up money in extra inventory. So, when the foundries closed, all chip production stopped. While design teams could continue operating from their home offices during quarantine, fab production lines were completely quiet.
“It took a while for fabs to start up again due to the limitations of face-to-face employee interactions and social distancing requirements,” Balch said. Meanwhile, IC customers were busily adjusting their orders from IC manufacturers based on how they thought the economic turmoil would hit their businesses. For instance, the automotive industry scaled back the orders because they anticipated a big economic downturn. On the other hand, consumer electronics companies foresaw increased sales opportunities for many of their products.
Figure 1 The automotive industry was among the worst hit by chip shortages. Source: Yole Développement
Executive VP for Siemens’ IC EDA Segment Joe Sawicki outlined two major factors regarding IC shortages. First is the unique nature of Covid and its impact on the economy. Rather than causing a broad recession, it instead caused one concentrated in services. Demand for goods—whether from consumers for connected exercise machines or from corporations and their need for more compute and communications to run the remote workplace—exploded and that drove heavy demand for semiconductors.
Second, Covid caused problems in manufacturing and assembly, as occasional shutdowns occurred to bend infection curves down. Its impact on transportation is now well known. “Add on top of that the fact that some semiconductor consumers reacted very strongly at the beginning of the pandemic to turn down orders to avoid carrying excess inventory in what they thought would be a broad recession,” Sawicki said. “They found it very difficult to get manufacturing slots back given the overall increase in demand.”
That’s how you get today’s headlines.
Democratization of SoC design
Regarding the IC shortage in 2021, Arteris IP chief Janac pointed to another interesting dimension: too much demand at the leading process nodes and not enough supply. First, on the supply side, foundries stopped leading-edge node process development, and Intel fell behind in process development. That, in turn, left TSMC and Samsung as the only leading-edge foundries. It also meant that most of the world’s leading-edge semiconductor devices are made in Hsinchu, Taiwan and Suwon, South Korea with a few other locations such as Austin, Texas and Nanjing, China.
Next, on the demand side, there are more than 450 companies designing complex system-on-chips (SoCs) across the globe, producing around 600 complex SoCs per year. It may well amount to nearly 2,000 semiconductor designs overall. Semiconductor firms are responding to great demand due to infrastructure deployment, automated driving, car electrification, machine learning implementations, and new cloud applications.
Figure 2 IC shortage has exposed the semiconductor industry’s over-reliance on mega fabs. Source: TSMC
In addition, says Janac, system houses are now designing chips. As a result, there are more and more SoC designs going to two leading-edge foundries and additional four to six trailing edge or specialized process foundries. “The semiconductor IP methodology has enabled many more companies to be successful in building SoCs.” Janac calls this democratization of SoC design.
So, no wonder there is a chip shortage.
IC supply chain vulnerabilities
However, almost two years into this pandemic, production should have settled out by now. But the initial problems caused by shutdowns have been compounded by other factors. “Several production facilities, both domestic and abroad, have been impacted by storms and drought, limiting their output,” Balch said. More importantly, she added, the broader supply chain issues related to transportation have affected the semiconductor industry just like so many other industries.
The bulk of IC production is done in Asia, predominantly Taiwan and China, and chips need to be shipped worldwide. Shutdowns of ports in Asia, North America, and Europe led to completed IC devices sitting idle on ships and in containers, unable to reach their destinations. It has been compounded by labor shortages in ports and ground transportation industry, limiting the ability of chip customers to actually receive the ICs. As a result, products can’t be delivered in a timely fashion.
The fiasco of chip shortages of all types has illuminated how precarious the whole international supply chain is. “It relies on all links in the chain operating smoothly, so even a small hiccup can result in significant disruption,” Balch said. “However, in this case, there were so many massive problems on top of one other that full resolution has become a long process.”
Everyone in the IC supply chain is working to fix today’s problem, but the fact that the chip shortage is caused by multiple issues that haven’t been fully resolved makes it tough to get to a full resolution, she added. “The labor shortages in the ports and ground transportation industry are most certainly still plaguing everyone.”
So, what is happening right now at stakeholders like chip vendors, fabs, and other players such as IP suppliers and toolmakers? The following article will provide a sneak peek into the semiconductor industry’s efforts to overcome the chip crunch. Stay tuned.
This article was originally published on EDN.
Majeed Ahmad, editor-in-chief of EDN and Planet Analog, has covered the electronics design industry for more than two decades.