While the semiconductor industry executives are burning the midnight oil to overcome the supply crunch, the elephant in the room is overcapacity.
While the previous article outlined the root causes of chip shortage in 2021, here is a take on how this IC crunch may pan out in 2022 and beyond. Will the hypercompetitive semiconductor industry allow this shortage to drag into 2022, and as they say, leave money on the table? From the outset, it seems unlikely.
However, it seems most semiconductor companies believe that the supply imbalance will continue in 2022 and possibly even into 2023. Laurie Balch, research director at Pedestal Research, agrees with that sentiment. “IC development and production are not a quick turnaround type of operation,” she said. “There is substantial ramp-up time required to get from design to full-scale production.”
It means that some products ready for production will miss their launch window because of the delays and timing mismatch. New products will fill that void, but that will also take time to go through the full design-to-manufacturing cycle. “Semiconductor fabs will churn out ICs at full capacity,” said Balch. “But I expect that the challenges of rebalancing the mix of semiconductor devices and getting them into customer’s hands will take much longer to settle.”
At the same time, however, IC developers and suppliers now have a better picture of the types of products end users are demanding. So, there’s much less disconnect between what’s being ordered and what’s being produced, Balch pointed out.
Supply chain transformation
When asked about what is happening right now at stakeholders like chip vendors, fabs, and others players such as IP suppliers and toolmakers, Arteris IP president and CEO Charlie Janac’s answer was, “it’s hard to know exactly.” However, he reckons that there is probably substantial double ordering as well as price hikes and a dramatic increase in foundry capital investment.
Figure 1 The year 2021 has seen a dramatic expansion in semiconductor manufacturing equipment investments. Source: ASML
Janac added that semiconductor companies are porting their customized processes to fabs that have some capacity available. Likewise, system houses are rewriting their software to run on semiconductors that are available.
Balch also noted that some companies have been able to redesign their end products in order to incorporate alternative ICs that happen to be available in lieu of their original semiconductor bill of materials (BOM). “But this is not something many customers can reasonably do,” she added. “Nevertheless, IC and electronics system designs continue to proceed full steam ahead.”
It’s apparent from the fact that the EDA industry has experienced a sloid growth.
Joe Sawicki, executive VP for IC EDA Segment at Siemens Software, acknowledges this trend on the EDA front. He especially sees an explosion of interest in tools that can boost yield. That includes tools like production diagnostics and yield learning that can help drive yields higher on either initial or mature products as well as design for manufacturing (DFM) tools that can increase the probability of greater yield in designs taping out today. “Anything that can increase supply without requiring access to additional wafers is at a premium,” Sawicki added.
Historic fab expansion
Another notable trend: fabs are being expanded and new ones being built. And semiconductor manufacturing equipment makers are running flat out to meet this demand.
There is a need for more fabs, so TSMC, Samsung and Intel are dramatically increasing capital investment in order to boost production capacity. Moreover, while the existing fabs are being expanded with additional manufacturing capacity, governments of the United States, China, Japan, and to a lesser extent, the European Union (EU) are racing to build leading-edge fabs on their soil. They are enticing existing foundries to expand their production capacities with subsidies and tax incentives.
Figure 2 Intel is building two new fabs in Arizona as part of its foundry turnaround plan. Source: Intel
“We are in the midst of regionalization of the semiconductor industry,” Janac said. He also agreed with the common industry perception that chip shortages would continue in 2022. “There is so much pent-up demand for system-on-chips (SoCs) that have been designed and have yet to go into production,” Janac said.
However, he noted, a likely scenario is that post 2022, the investment in additional fab capacity will overshoot, leading to excess fab capacity that will then take a number of years to work through. Here, it’s worth mentioning that the semiconductor industry has historically been quite cyclical as it is hard to get to a right balance of supply and demand.
Still, this chip shortage fiasco has brought some valuable supply chain lessons. First and foremost, after the fall of the integrated device manufacturer (IDM) model and the meteoric rise of fabless companies, the role of semiconductor fabs is now far more established than before. That, in turn, calls for a more coordinated working relationship between chip vendors and semiconductor fabs. It’s especially crucial for smaller process nodes.
Second, amid the rise of the SoC design movement, which Janac calls the democratization of the chip design, the role of IP vendors is far more critical in the IC value chain. Along with EDA toolmakers, the IP vendors are working closely with fabs on a range of process technologies. Then, there are software houses providing third-party services to chip vendors. That’s another vital factor in the semiconductor supply chain.
The changing face chip industry
In the final analysis, Covid has provided a wake-up call to the electronics design industry. Intel’s failure to keep up with TSMC and Samsung on smaller process nodes and Intel’s subsequent plans for providing foundry services are a stark reminder of how much the semiconductor has changed over the past decade or so.
The segregation between chip design and manufacturing industries hasn’t been more glaring. How this reshapes the larger chip industry will be interesting to watch in 2022. Furthermore, while the semiconductor industry executives are burning the midnight oil to overcome the supply crunch, the elephant in the room is overcapacity.
So, most likely, we will see a balancing act in the play throughout this year. Interesting times, indeed.
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.