Is the Semiconductor Crisis Over?
The world has, in recent years, become acutely aware of the elusive group of components referred to as semiconductors. Their pervasive influence touches every facet of the modern business landscape, from automotive giants to consumer electronics titans. However, what was once an unassailable cornerstone of innovation has now become a fragile keystone in the worldwide economy. These components are not only the brains behind our gadgets but are also instrumental in the development of sustainable energy solutions, driving electrification & digitalization.
The Precision of Semiconductor Fabrication
Semiconductors, particularly microprocessors, are marvels of precision engineering. A modern microprocessor, the size of a thumbnail, can contain a mind-boggling 20 billion transistors. These transistors are not assembled mechanically but rather chemically etched onto wafers of semiconductor material, typically silicon. Tiny patterns are etched onto the silicon wafer, and dopants are precisely introduced to create the desired electrical properties. Even the tiniest imperfection can render the entire chip useless.
“A modern microprocessor, the size of a thumbnail, can contain a mind-boggling 20 billion transistors.”
The Capital-Intensive Nature of Semiconductor Manufacturing
Beyond the technical complexity, another formidable barrier to entry in the semiconductor industry is the colossal capital investment required. Only a handful of companies worldwide have the financial muscle and expertise to operate at the leading edge of semiconductor technology.
Regionalization and Increased Investments in Manufacturing Capacity:
In response to the semiconductor shortage crisis that started in 2020, many semiconductor manufacturers announced significant investments in expanding their manufacturing capacities. Announced investments in the upcoming three years for the 12 largest stakeholders exceed 410 billion USD, comparable to the 2022 Gross Domestic Product of Sweden, which amounted to around 585 billion USD.
Figure 1. Announced global investments in the upcoming 3 years.
European and US governments, along with semiconductor manufacturers, place a large emphasis on reducing dependency on Asia. Europe represents approximately 10% of the global semiconductor fab capacity as of 2023, and the European Chips Act, launched in September 2023, aims to double that share to 20% by 2030.
No Overnight Change in Supply
It's imperative to acknowledge that tangible results will not materialize overnight. The intricate nature of such endeavors means that several years may pass before their impacts become apparent. Consequently, the semiconductor industry's current challenges are likely to persist during this transitional phase, necessitating patience and a long-term vision. We are, however, now starting to see capacity being brought online. At the end of 2023, 13 additional 300 mm wafer semiconductor fabs will be brought online, increasing global capacity by 8%, slightly above the long-term trend of 7%.
Strategies to Successfully Navigate the Semiconductor Market
Recent years have highlighted the significance of forging strategic alliances and collaborations to effectively maneuver the semiconductor market. This entails fostering partnerships among semiconductor manufacturers, suppliers, and end-users to ensure a dependable flow of critical components as well as close-knit collaboration during the developmental stages for optimal utilization of diverse semiconductor technologies. The linchpin of successful partnerships lies in the provision of transparent communication channels, facilitating long-term planning and precise forecasting.
Is the Semiconductor Crisis Over?
In recent months, the semiconductor supply landscape has exhibited signs of stabilization. Nevertheless, it continues to face challenges, including sporadic disruptions in specific product families, primarily due to obsolete technologies and geopolitical tensions.While there has been a gradual decline toward a more normalized state, it's important to note that semiconductor lead times are still relatively high compared to pre-pandemic figures.
Figure 2. Average semiconductor lead times. Aggregated product types.
As this environment transforms into the new normal, organizations must prioritize the development of robust business continuity plans. Consequently, a best practice business continuity plan for semiconductors should include:
- Identification of which semiconductors are used in the products.
- Establishment of relationships within the supply chains, not only focusing on tier 1.
- Building partnerships with the actors in the supply chain to ensure both up- and down-stream transparency.
- Alignment of the product roadmap with the roadmap of the semiconductor manufacturers.
Looking ahead progress is evident as delivery forecasts become more reliable, bolstering overall supply chain stability.
Nevertheless, it is important to acknowledge that global semiconductor supply chains remain under significant strain, stemming from a long-lasting shortage and escalating demand driven by digitalization. Taking us back to the question at hand, yes, the crisis is over – this is the new normal.