Chip shortage: After more than a year, experts weigh in

The chip shortage continues 14 months  after reports first surfaced about its impact, initially on the auto sector.  Worries about semiconductor shortages for a variety of products  have also  morphed into bigger worries about the global supply chain as well.

For some insight, Fierce Electronics connected with a consultant at Capgemini Engineering  and a new report from consultants at Deloitte Consulting based on interviews with auto supplier executives.

First, here are lightly edited comments from  Shiv Tasker, Global Head for Semiconductor and Electronics at Capgemini Engineering:

FE: There’s some confusion about how much raw materials have caused the chip shortage that continues. Can you clarify?

ST: The chip capacity shortage has nothing to do with rare earth materials. There was an issue with availability of pure silicon, but that is behind us. In addition to 2020 slow-downs and shutdowns from the pandemic, there were more force majeures declared by fabs in 2021 than in any other year due to climate change and extreme weather.

Fabs are largely automated and do not suffer from labor shortages. OSATs (Outsourced Semiconductor Assembly and Test) are more vulnerable to labor availability, but we don’t hear of issues in OSATs. This is however a demand and capacity imbalance and demand has snuck up on the fabs as the recovery is broad based, global and in every product category.

FE: What is happening lately with the auto sector and its  chip availability which has been hard hit? Automakers earlier estimated losses of $110 billion in 2021.

ST: Most automotive chips are fabricated on older process nodes – 65, 40, 22nm. Industrial, medical chips etc are also manufactured on the same nodes. Capacity for these nodes will be restored when fabs are caught up and when other devices and chips move to newer nodes that free up more capacity at auto nodes.

Consumer demand for vehicles is still backed up for months, and no one is forecasting a diminution in demand. No automotive company has publicly announced that people will buy fewer cars in six to nine months. This will begin to improve as capacity is restored: as fabs catch-up with backlogs, through process migration to alternative nodes, and when capacity is freed when other devices at auto nodes migrate to newer nodes. Some of this capacity will help the automotive industry, but largely it will support newer nodes to accommodate CPUs, baseband, GPUs, with some room for MCUs that will have AI/GPU thrown in for automotive. 

FE: How can we avoid this situation in the future?

ST:  Migrating chips from one node to another or from one foundry to another takes six to nine months if the chip experiencing the shortage was not second sourced when it was designed.  It can take four to six months for post silicon validation before ramping up production. So if someone starts today, they would be ready to take up 10nm foundry capacity in around 12 to 15  months from now --so that would be Jan 2023.

Capgemini Engineering has been engaged in a number of discussions about second sourcing that involves migration across nodes and foundries as fabless semiconductor companies hunt for capacity. We're also advocating that chip designers implement second sourcing as part of their chip design best practices so they're better prepared for similar supply chain disruptions in the future.

Deloitte’s findings

Deloitte consultants  in a recent report raised concerns that ongoing supply problems may extend to commodities needed for EV batteries-- namely lithium, cobolt and nickel.

The report, Deloitte’s fifth Global Automotive Supplier Study, also found that EVs are poised for exponential growth, with the size of the market for electric drive trains and batteries and fuels cells expected to grow 475% in the next five years.

“As we’ve seen in the last year and a half, material scarcity led to significant production challenges and the semiconductor crisis could be a harbinger of things to come,” said Raj Iyer, managing director of Deloitte, in the report. “A resulting material constraint would have a knock-on effect on an entire emerging segment that would keep prices high and further limit EV market penetration.”

Deloitte suggested auto suppliers retire obsolete technologies, including old  IT systems.  The war for talent will continue as demand for software developers and data engineers to support EV reaches an all-time high.

“As a result of the pandemic, automotive suppliers have learned how to operate leaner and should continue to remain flexible to shifting economic, geopolitical and logistical issues. Of all the raw materials required to forge the next step in global automotive mobility, time is perhaps the scarcest,” said Jason Coffman, U.S. auto consulting leader and principal at Deloitte.

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