Over the past two years the electronics industry has navigated not only the pandemic and the economic dislocation that it caused, but has also had to manage on-going problems from the supply chain and manufacturing capacity to changing customer demand.
As one of the world’s leading semiconductor companies delivering solutions that span the automotive, industrial, infrastructure and IoT markets, Renesas Electronics is well placed to provide an overview of how the industry has been coping and what the future could hold.
To get a sense of where the market is and where it is going New Electronics spoke with Dr. Sailesh Chittipeddi, the Executive Vice President and General Manager of the IoT and Infrastructure Business Unit at Renesas.
When we spoke tensions between Russia and the Ukraine were growing but it was before the actual invasion of Ukraine took place, and that action is likely to result in additional disruption.
Analysts and industry watchers are warning of supply shortages and a further jump in semiconductor pricing. Both countries have an important role in the global semiconductor supply chain in terms of raw materials such as gases and rare earth metals, both of which are critical to the semiconductor industry.
Despite that caveat, when we spoke Chittipeddi was upbeat about the past twelve months and pointed to a very strong market recovery.
“Whether it’s automotive, industrial or IoT applications the recovery from Covid has been a significant driver of what has been a very strong period of growth. The continued strength that we are seeing is certainly an encouraging sign, but I think what will happen going forward will be more muted than in previous cycles,” he suggested.
“2021 was a very strong year both for Renesas and the wider industry and we expect that strength to continue into 2022. If you look across all our key segments – infrastructure, industrial and the IoT – growth has been exceptional. A big opportunity for the company going forward is around data creation and the move to drive intelligence from the cloud to the sensor edge, which will be supported by four key elements: sensors, power, connectivity and actuation.
“Our recent acquisitions of Dialog Semiconductor and Celeno, a provider of smart, innovative Wi-Fi solutions at the end of last year, has helped to better position the company in terms of this fast-growing segment.”
According to Chittipeddi, these acquisitions have brought a diverse talent base to the company and provided it with a much stronger footprint in Europe.
“They’ve enabled us to expand out footprint in wireless and established us as a more credible supplier in the mobile space. Connectivity had been a weakness for Renesas, so these acquisitions have really helped the business in terms of our Wi-Fi and Bluetooth offerings. We’re seeing strong synergies and much stronger revenues as a result.”
The demand for IoT endpoint devices that can collect sensor data and connect to servers or to the cloud is growing and, in response, Renesas recently announced the launch of the RZ/Five general-purpose microprocessor unit (MPU).
“Built around a 64-bit RISC-V CPU core it augments our previously available Arm CPU core–based MPUs and will expand customer options and provide more flexibility when it comes to product development,” Chittipeddi explained. “It enhances our portfolio and helps us to cover a wider application domain.”
Looking to the future, Chittipeddi said that he thought that demand would continue to outpace supply across all industry segments, providing a real challenge for foundries and for companies, like Renesas, with their own internal capacity.
“Capacity has and will remain tight across most nodes – everything from 28nm to 180nm is affected – except for the more advanced nodes. The industry is currently unable to meet customer demand and while there is new investment that capacity won’t be available for some time, which means we won’t be able to fulfil customer demand.
“Renesas does have a strong internal manufacturing capability but that is primarily geared to 40nm and above – our sweet spots are our NF3/4 technologies which cover 130-110nm.
“Recent acquisitions are foundry based, so our exposure to external foundries is expanding but we still remain less dependent on them than many of our competitors.”
More transparency
“However, growing political tensions and the transparency of the supply chain, caused in part by the impact of the pandemic, have triggered a significant up-tick in investment and moves to add more capacity. How that develops will be interesting,” said Chittipeddi. “TSMC, Intel and Samsung have all upped their capex, are claiming to have new customers and are signing deals. But whether demand materialises is a different matter.
“Those deals could be affected by political considerations and customers may not abide by long term commitments.
“Geopolitical tensions have been working to split up the supply chain. Today, there is a much greater focus on, and awareness of, local demand. As companies look to navigate this new environment, we could end up seeing excess capacity but it’s not clear to me how that will play out,” he conceded.
Turning back to Renesas, the company is seeing healthy demand for both its analogue and power products and is looking to sign long term capacity agreements to secure supplies.
“There are fundamental drivers of growth across several sectors. “Whether that’s the moving of intelligence to the edge, the use of artificial intelligence (AI) or power efficiency - and doing all of this in a sustainable way – they are all becoming more important.”
According to Chittipeddi, when looking at the supply chain the one thing that has changed significantly in the past 12-18 months is the demise of ‘just-in-time’.
“Just look at the automotive sector. Under the pressures caused by Covid just-in-time fell apart. Consequently, what we’ve seen is much greater visibility when it comes to the supply chain, and there’s now a stronger direct relationship between customers and IC manufacturers.”
According to Chittipeddi the move away from just-in-time has seen the development of a much greater appreciation of the need to retain sufficient inventory.
“The disruption of the past two years laid bare the nature of the supply chain and there’s now a healthy respect for inventory, something that in the past most companies would have spent little time considering. I think the imbalances we’re seeing will begin to ease and by 2023 l hope we’ll be back to something like what we were seeing in 2019.
“While greater transparency is more important so too is the issue of sustainability, which I mentioned previously, and customers are now interested in how we handle waste material and manage our inventory as a result,” he suggested.
“Stakeholders have become more aware of the issue of sustainability and are certainly putting more pressure on companies to address it - much more so than in the past.
“We as a business have to comply with environmental standards and regulations. Today it’s no longer a simple ‘tick-box’ exercise and that has been another dramatic shift within the industry.
“Driven by stakeholders we are expected to demonstrate compliance and the environmental impact of our factories and our approach to recycling now play an important part in how we run our business. You need to address these issues because they can create an ‘edge’ in what is a highly competitive market. They’re now an integral part of what we are doing as an industry.”
Rising inflation is another issue of concern, whether it’s substrates or raw materials prices have been rising and that has been ‘cascading’ down through the supply chain.
“If it does become entrenched then it will be a concern as it will depress consumer demand over time,” warned Chittipeddi.
Despite concerns over inflation and ongoing problems regarding supply and demand, Chittipeddi said that he remained optimistic and was confident that the company was well positioned to address the key technology trends of the next 5-8 years.
“Whether that’s intelligence at the edge, the IoT or AI, we have a bright future ahead of us. With the rise of the metaverse and strong growth in the data centre space the opportunities are there for us to grasp.”
