Deloitte: Why the chip shortage is lasting so long

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According to a new report from accounting and consulting firm Deloitte, if a $ 1 chip is not available, it could stop the shipment and sale of the device, device or vehicle of higher value.

With the Covid-19 epidemic and rising demand for recovery, the semiconductor industry has seen its longest shortage from the spring of 2020 to the fall of 2021. Deloitte expects it to last at least until 2022, which will push the pioneer forward. Time for shipment of some components expires in 2023.

The impact is still being felt in PCs, smartphones, datacenters, game consoles, other consumer goods and especially the auto sector. The impact of the deficit’s accumulated revenue is expected to exceed $ 500 billion in lost sales globally between 2020 and 2022.

The lack of the next semiconductor could be greater than this one. Given the ever-increasing importance of chips for multiple industries, the economic losses could be even greater, the firm said. He therefore studied what semiconductor manufacturers, distributors, consumers (semiconductor supply chains) and governments could do to avoid other potential catastrophes. The problem is so big that no single company, or even industry, can make a difference on its own.

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Some feel that today’s shortage is a one-time event. Unless we have a global epidemic once in a century, a huge fire at a key Japanese chip plant, a Texas freeze, and a ship stranded in the Suez Canal – all in one – cannot be the next shortage. Maybe not so serious, right?

Above: The chip industry has seen half a dozen declines and shortages over the decades.

Image Credit: Deloitte

But Deloitte said that over the next decade, it is certain that events such as the global recession, the major weather event, and the disruption near the critical seaport or Strait could occur almost simultaneously. The chip manufacturing industry and supply chains, as they currently exist, are inherently prone to disruptions, making scarcity inevitable.

In the last three decades, we have seen six shortages of the same duration or intensity as today. Sometimes shortages arise or are exacerbated by external shocks such as the tech bubble or the 2009 recession, but sometimes they “just happen.”

Adding capacity to the chip industry has always been costly and cumbersome. It occurs in waves driven by both technology and market forces, and there is a long time between deciding to build a fab (or semiconductor fabrication plant) and that fab producing its first output (finished wafers). So, the real question is not whether there will be another shortage, but when, and how severe?

Breaking the Bull Whip

Above: Chip shortage solutions.

Image Credit: Deloitte

Bullwhip is a sales lead when supply and demand are out of sync due to poor communication in the supply chain.

All the different players don’t have to do all the parts of each other, work together and make glut at the same time. Deloitte said companies should choose a specific action or combination of actions based on what role they play in the broader semiconductor ecosystem and value chain.

The entire chip industry is committed to increasing overall production capacity to unprecedented levels. The capital expenditure of the three biggest players will exceed $ 200 billion by 2021 and reach $ 400 billion by 2025.

Governments have committed hundreds of billions more. Deloitte expects global wafer launches of 200-millimeter wafers per month (which are processed in chip factories and cut into individual chips) to increase from about 20 million in 2020 to 30 million by the end of 2023.

Capacity will grow at almost the same rate for each of the 200mm and 300mm wafer sizes. To put it bluntly, the increase in 200mm is mainly due to the increase in capacity in existing fabs, rather than the construction of a new plant, which will cost about $ 12 billion in capital equipment between 2020 and 2022.

Deloitte Capability Forecasts.

Above: Deloitte capacity forecasts for chips.

Image Credit: Deloitte

In terms of technology, capacity on mainstream nodes and more advanced 300mm process nodes (under 10nm, mainly at 3nm, 5nm and 7nm – where nm refers to nanometers, or the width between circuits) will grow faster than more mature process nodes. . It is worth noting that the demand for wafer sizes and all process nodes is increasing, not just the most advanced.

A massive 50% increase in capacity in just three years would cover any future shortages, right? The answer is not so clear.

On top of increasing overall capacity, the chip industry should build local capacity. Chip manufacturing is geographically clustered and needs to be distributed over more regions. Concentrations at the 2020 level in East Asia (including Japan and China, which are close to 60%) have attracted government attention from the United States, Europe, and China, and plans to build new plants in those countries or territories are already underway. As well as Israel, Singapore and others.

The chip industry is concentrated in Taiwan.

Above: The chip industry is concentrated in Taiwan and the rest of Asia.

Image Credit: Deloitte

It is difficult to move the needle at the geographical concentration of the chip supply. There are more than 400 semiconductor manufacturing facilities globally, and plans have been announced to add 24 new 300mm fabs by 2022, but only 10 new 200mm fabs in the same period.

Some of them are in South Korea and Taiwan. Adding two dozen new locations outside of these clusters can help. Deloitte said the new locations would only reduce the concentration in East Asia by a few points, meaning it would still produce more than half of all chips by 2023.

The industry must also be strategically weak – chip buyers, distributors and retailers need to decide which level to choose. There is such a thing as lean.

It is necessary to break the bullwhip on the demand side. Manufacturers of original equipment (system companies), distributors / suppliers and consumers are affected by the bullwhip effect where delayed communication between stakeholders at every level in the supply chain is amplified by judgments placed on demand signals. This needs to change.

Above: US share in chip manufacturing has declined over the decades.

Image Credit: Deloitte

Smart operations capabilities are important for semiconductor manufacturing, which is complex and sensitive in nature, largely automated and enabled by capital-intensive factories. Capabilities that facilitate digital process modeling (such as digital twins), operations monitoring, factory operations synchronized with material availability, and responsive factory scheduling adjustments allow factory operations teams to work efficiently and with high resource utilization.

And Deloitte said many manufacturers had begun digital transformation by the spring of 2021. Future supply chain-driven business disruptions require constant innovation to become more adaptable. All of this will require close communication.

Demand is growing almost faster (or more) than planned capacity growth. Demand drivers include 5G, Artificial Intelligence and Machine Learning (AI / ML), Intelligent Edge and Internet of Things (IoT). Some of these are about delivering increasingly powerful chips to products that already use a lot of chips, but some are about adding chips to products that previously had no chips.

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