Here’s how chip firms can prep for the circular economy: Howell

The circular economy (CE) – that still-all-too-notional transition from a take-make-waste way of doing business to one embracing reuse, repair, and recycling – presents serious challenges to the semiconductor industry. Its products today are hard to recycle. Its focus on the competitive drivers of functionality, performance, and cost has far outweighed arguments for refurbishment, reuse, and recycling. Its products evolve quickly, and, particularly with low-cost embedded devices, contain less high-value material than earlier generations, further squeezing the business case for recycling.

What’s more, these embedded devices lend their smarts to the internet of things (IoT). Such semiconductors are proliferating so explosively that, by middle of this decade, an estimated 75 billion of them will be enhancing the intelligence of smart watches, TVs, doorbells, thermostats, refrigerators, light bulbs, and a litany of other products – and E-waste is already the world’s fastest-growing waste stream.

Of course, the nature of many IoT products may temper this growth. The longevity of consumer products with embedded devices will stretch product lifecycles: unlike mobile phones and laptop computers, people don’t upgrade their doorbells and thermostats every three to four years.  On the B2B side, Everything-as-a-Service (XaaS) and outcome-driven business models incentivize the extended use of older, less-expensive equipment as long as it fulfils service-level agreements.

Still, IoT devices will still fuel e-waste growth, and pressure to more fully realize CE will continue to mount. A comprehensive manifestation of CE will ultimately require major investments in government-spurred, geographically distributed recycling centers capable of focused extraction through chemical and other methods. But semiconductor firms can take two important steps in the near term to position themselves for the CE future. The good news is, those same steps also put the industry in a better position to tackle today’s chip shortage while laying the groundwork for the sort of detailed carbon tracking that emissions regulations now taking shape around the world will demand.

Both steps involve data infrastructure. The first is about upgrading from the peer-to-peer electronic data interchange systems the industry has relied on for a half century. The second harnesses blockchain’s immutable ledgers and other technologies to enable the tracking and tracing needed to determine everything from reuse potential to recyclability to end-of-life disposition.

Upgrading EDI

First, with respect to EDI, RosettaNet has been a welcome augmentation of the half-century-old supply-chain communications protocol. But it’s not up for today’s challenges, much less those that lie ahead. EDI is too expensive for small companies, and small companies play vital roles in this industry. Also, it’s a 1-to-1 system in an n-to-n business. That’s been a problem with respect to the chip shortage.

There’s untapped production capability in the industry in the form of devices that, while too imperfect for their slated uses, would be perfectly adequate for lesser applications (say, a flawed batch of automotive-class chips that could instead populate a radio-controlled toy car). With immediate, thorough, and relevant communications among players up and down the value chain, the chip maker and the toy producer could connect quickly, and a wafer that produced only 1,000 of 1,200 hoped-for automotive-quality chips could yield the full 1,200 in a hierarchy of quality tiers. That, in turn, takes pressure off the nominal producer of the toy-car chips – and the industry at large. In aggregate, such yield gains could delay or even obviate the need for new multibillion-dollar fabs.

Conversely, if there’s a yield bust in which a wafer delivers just 200 of 1,200 anticipated automotive-quality chips, the automaker can recognize that instantaneously rather than waiting for a series of 1-to-1 EDI updates percolate through the system – as can the toy maker, which can enjoy an even greater bounty.

It happens that the auto industry is developing a business network that the semiconductor industry might consider as a model: Catena-X, which aims to develop secure, continuous data chains with multiple partners across a multitier supply chain for a common value-creation process.

The semiconductor industry’s successor to EDI will be about more than just simple messaging. It will involve analyzing the massive amounts of data churned out by the manufacturing and testing of semiconductors and sharing that data across the value chain so the semiconductor supplier, the OEM, and the parties between and beyond the two can identify opportunities to improve quality, yields, designs, reuse, and proper end-of-life disposition.

Track and trace with immutable blockchain

The second element of CE-enabling data infrastructure will involve track-and-trace capabilities well beyond those of current approaches. A company aiming to repurpose an aging semiconductor device will need to understand its origins, capabilities, and configurability; a recycler needs to know its composition. Climate-related regulations will demand a precise understanding of energy inputs and outputs for carbon-footprint calculations up and down the supply chain. Extended producer responsibility comes into play here, too, to ensure that a product and its semiconductors is properly disposed of at end of life.

The immutable ledger of blockchain appears to be perfectly suited to this application. And, as with upgrading from EDI, there’s also an obvious near-term benefit: Digitally fingerprinting devices using blockchain could make counterfeit semiconductors far easier to identify, solving both a business problem and, when you have counterfeit chips going into medical devices and airbag deployment systems, mitigating a public health issue.

The semiconductor industry may not be on the front lines of the circular economy just yet. But a combination of environmental, regulatory, and competitive pressures will bring CE to bear sooner than later. Fortunately, some of the key ingredients for its success – foremost, the data infrastructure that will enable the precise, real-time information flows CE will demand – can also help ensure resilience and profitability as the circular economy takes shape.

Jeff Howell is Global Vice President, High Tech, SAP SE..