The “butterfly effect” refers to a seemingly inconsequential event that causes drastic consequences as it ripples throughout a complex ecosystem. Often, the instigating factor seems benign at first but causes minor problems which become larger ones.
Moore’s Law means it’s cheaper and easier to control processes with semiconductor-driven devices. Why vacuum your house when a semi-autonomous robot can do it for you? Devices from automobiles to coffeepots now feature digital displays and a processor offering functions we want, think we want, or could not care less about.
But Moore’s Law is algebraic. It does not map the calculus of manufacturer demands and supply chains. Nor is there a corollary for a global pandemic that forces millions of workers into work-from-home (WFH) and causes outsized spikes in online traffic.
Queueing for chips
A recent article in the Harvard Business Review (HBR) highlights our growing interdependence on silicon. “Lead times for many semiconductors are one year out right now,” wrote Bindiya Vakil and Tom Linton in the HBR. “Business and financial media have detailed how the shortage of semiconductors has caused production cutbacks in the automotive industry: Ford, Toyota, Nissan, VW, and Fiat Chrysler Automobiles (now a part of Stellantis) are among global carmakers that have scaled back output.”
Several of these automakers unveiled booths at the massive Mobile World Congress in Barcelona a few years back. While MWC is a tech-centric event, carmakers (like all large manufacturers) clearly felt the need to promote their wares ― and interface with industry leaders on standards. Semiconductor supply chains are now interwoven into the fabric of business, so any interruption is a potential problem.
Black swan event
The industry experienced a “perfect storm” of unrelated factors. The COVID-19 epidemic cratered demand in mid-2020, so automakers slashed orders of parts and materials...including semiconductors. By Q3, demand had returned, but by then, chip manufacturers were ramping up to meet the skyrocketing demand from IT.
Geopolitical issues involving different regions haven’t helped either. In February 2021, President Biden signed an executive order directing U.S. federal agencies to review supply chains for critical goods, specifically targeting semiconductors, key minerals and materials, pharmaceuticals and their ingredients, and advanced batteries, like the ones used in electric vehicles. “Even small failures at one point in the supply chain can cause outsized impacts further up the chain,” said Biden.
And last week, Reuters reported that German chipmaker Infineon said it expected a quarterly hit to revenues in the high double-digit million euro range from a production outage at its plant in Austin, Texas, caused by last month’s snowstorm. Infineon said it was continuing to ramp production and expected to reach pre-shutdown production levels by June 2021.
No one could have foreseen this particular mix of misfortune, but industries more attuned to silicon distribution vagaries were more agile in securing their supply chains. Makers of consumer electronics, for example, don’t have to worry about tires or carburetors. But the silicon shortage has ramifications for them as well.
A Bloomberg article from February said: “Chip shortages are expected to wipe out USD 61 billion of sales for automakers alone, but the hit to the much larger electronics industry ― while tough to quantify at this early stage ― could be far [worse].”
“Ford is predicting a 20% slump in production, and Tesla shut down its Model 3 assembly line for two weeks. In the U.K., Honda was forced to temporarily shut its plant as well,” said a UPI story from March. “Even highly experienced tech companies such as Nvidia and Microsoft are struggling to provide a steady stock of graphics cards and Xboxes, respectively. It appears that no company, big or small, tech or non-tech, is safe from the wide-ranging impact of the great semiconductor famine of 2021.”
Looking at the rear-view mirror
Why haven’t semiconductor manufacturers ramped up their production facilities to deal with the growing demand? Partly because the production ecosystem for silicon chips is much like a supertanker ― it’s massive, and much effort is required to slow it down or speed it up. In recent years, the drive has been to make chip-wafers in larger sizes. More chips can be extracted from a single wafer (a similar effort to fabricate large-screen panel displays a decade ago is why these displays became so inexpensive).
The latest preferred size is 300mm, but 200mm plants are not only still operating but becoming increasingly popular as the shortage bites. This isn’t uncommon in the IT world ― although we’ve become accustomed to acceleration across all fronts, sometimes, it seems, we get ahead of ourselves and fall back on tested production methods.
The drive back to 200mm manufacturing has been evident for some time now. “An explosion in 200mm demand has set off a frenzied search for used semiconductor manufacturing equipment that can be used at older process nodes,” wrote Ed Sperling, editor-in-chief of Semiconductor Engineering, in 2017. “The problem is there is not enough used equipment available, and not all of the new or expanding 200mm fabs can afford to pay the premium for refurbished or new equipment.”
Back to the future
The shortage of used 200mm equipment continues, but the older manufacturing tech is making a difference. According to a Reuters item last week, Qualcomm chief executive officer Steve Mollenkopf said he is “seeing improvement” in efforts to ease chip shortages and that demand for older chips is easier to respond to.
“There’s an ability for the market to respond more quickly to some of the older nodes than the newer nodes, so depending on the product, you may be in a position to get some improvement,” Mollenkopf added.
Automobile manufacturers like Ford, whose assembly lines of a century ago helped shape manufacturing as we know it today, know the value of technology that’s not always bleeding-edge. Seems semiconductor manufacturers also have a new appreciation as the pandemic-driven butterfly effect creates unplanned supply chain shocks.
Stefan Hammond is a contributing editor at CDOTrends. He is an avid follower of cybersecurity issues, robotic, and macro tech trends. You can reach him at [email protected].
Image credit: iStockphoto/gorodenkoff