Global Shortage of Semiconductor Chips

January 26, 2022

Satya Vaddi

Corporate Strategy, MKS Instruments Inc.

From automobile manufacturers to game console makers and PC manufacturing, the semiconductor chip shortage has severely impacted every technology industry. A global shortage of semiconductors triggered by the surging demand for laptops and computers during the pandemic had a profound impact on the global automotive production lines. As an example, new car builds typically comprise about 500 – 1,500 different chips. Delivery lead times for ICs are currently averaging at 22- weeks compared to a 9-week lead time in Q3 2020. In 2021, the production of more than 1 million vehicles was delayed in North America alone and automakers are projected to lose about $210 billion globally in sales due to shortages.

Shortage of Semiconductor chips – Global effects

As a knock-on effect to the supply chain disruptions, unprecedented energy shortage caused extreme electricity shortage in China. To cope with the power shortfalls, the Chinese government is rationing electricity by ordering factories to work shorter hours and fewer days. As a result, production capacity at some facilities has been cut by one-third. Chipmakers with manufacturing in China have seen significant disruption to their production output due to the government-imposed power cuts.

The Biden Administration is also pressing semiconductor companies for more transparency about their supply chains as they strive to avoid a global chip crisis, and convened a meeting in September 2021 with key automakers, technology, and semiconductor companies with representatives from the likes of Apple, Ford, General Motors, Global Foundries, Intel, Micron, Microsoft, Samsung & TSMC in attendance.

Key players seek to expand capabilities

Chip shortages are projected to last for next several quarters and some of the key players in the industry are taking measures to expand their capabilities. Below are some highlights from September/October 2021 announcements across semiconductor industry:

Intel breaks ground in September for two massive chip fabs in Arizona with a $20 B investment. The two new fabs in Arizona will cater to growing demand for Intel’s products and provide committed capacity for Intel Foundry Services (IFS). The new capacity expansion will bring Intel’s total Arizona investment to more than $50B.

TSMC the world’s largest contract chipmaker, and Sony are considering jointly investing about $ 7B to build a factory in western Japan, to make semiconductors used in camera image sensors, as well as chips for automobiles and other products. If approved, the factory is slated to go into operation by around 2023/24

Samsung Electronics announced its plans to triple their foundry production capacity by 2026. The Korean manufacturer announced plans to enter volume production of 2-nm chips in the first half of 2025 and stated that they are on track to produce the 3nm chips using the new Gate-all-around transistor architecture in the first half of 2022.

SK Hynix, the Korean memory manufacturing giant announced that it will acquire a South Korea based ‘Key Foundry’, a contract chip manufacturer for $ 492 M. The acquisition is expected to double SK Hynix’s 8-inch foundry capacity

SMIC in China announced in October a new chip fabrication plant in Shenzhen to produce display driver and power management chips. SMIC previously stated that they are working with the Shenzhen government to invest $2.35 B into the plant which will produce 40,000 12-inch wafers per month using the 28nm node process. In addition to the Shenzhen plant, SMIC also announced plans for another $9 B fab in Shanghai also focusing on the 28 nm process.

Micron Technology plans a $7 B DRAM plant in Japan and will start operations by 2024 to serve and meet the demand for datacenter applications.

Bosch a major Tier 1 Automotive supplier in Germany is increasing CapEx with a 9-figure investment for a new chip manufacturing facility in Reutlingen by end of 2023, alongside expansion of the 300 mm wafer fab facility in Dresden.

Hyundai, the South Korean automaker has stated that it will develop its own chips to be more self-reliant during a supply chain crunch.

The CapEx intensive and concerted efforts as indicated above by the key players in Semiconductor industry are the first steps to help mitigate some of the supply chain constraints that we see today, in the long term.
MKS, as a key supplier of semiconductor components is well positioned to support the ongoing industry-wide efforts to ramp up production.

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