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The global shortage of components is threatening to slow down the global economic recovery as the demand for components has surged far higher than many expected.

“While it’s easy to blame fabs being locked down for the shortage of components, in reality, most have been fully operational throughout the crisis and the demand for ICs has been higher than fully functioning fabs could keep up with,” explained Johnson Chen, Executive Sales Director, Winbond Electronics.

The shortage of ICs is spread right across industry with components for networking, consumer and industrial applications all affected, but most of the news coverage has been around how chip shortages have been impacting the automotive sector which has seen the industry lose billions in lost production and sales.

“The automotive industry has been particularly badly hit and manufacturers are faced with a severe component shortage,” said Chen. “The lead time for automotive grade components is typically longer than for other applications, meaning the manufacturers had to resubmit the cancelled orders before their longer lead-times were taken into account. This has led to companies, such as BMW, GM and Ford all having to halt production lines while having healthy order books.”

In recent years, according to Christophe Bianchi, EMEA High Tech and Semiconductor Director at Ansys, “American and Asian semiconductor leaders have focused their production investments more on next-generation technologies (5nm and now 3nm), favouring the high-performance computing (HPC) market, to the detriment of sectors such as automotive and IoT.”

It is difficult to begin to estimate the total backlog of orders that has accumulated as many customers have placed identical orders with two or more fabs, which has affected the planning and operation of fabs as one order is delivered, and the duplicate is cancelled.

“Customers do not have any control over where they are placed in the queue, and fabs can fulfil orders any way that suits them. Higher volume orders and orders that are more profitable can often be prioritised over less profitable and low volume runs,” suggested Chen.

In response, several companies have made large investments in new fabs with increased capacity while the US, Japan and the EU have announced plans and allotted finance to encourage domestic semiconductor manufacture.

But it’s not just a matter of finance, according to Bianchi.

“Whether it is a question of setting up new factories or expanding existing ones, this must be done by combining technological innovation and mastery of the entire value chain, from manufacturing to the end use of components in high-growth sectors.

“Effective management of electronic component design relies on the ability to anticipate and analyse the underlying factors that can impact on yield and performance. These factors are by nature very dynamic (mechanical stress, thermal stress, connectivity, etc.), which is why new technologies are essential to optimise production flows.”

“It takes a lot of time to develop the high quality and disciplined human resources, along with the intensive industry cluster, which are the foundations of efficient semiconductor manufacturing,” warned Chen.

Dealing with the here and now

While global shortages are expected to last until at least 2023 Chen suggests that IDMs may be a solution that could take some of the strain. IDMs design, manufacture and sell their own chips. They have their own fabs and often operate in a specific area of electronics

“Winbond is an IDM that specialises in memory technologies. In that market, the company estimates that DRAM, SLC NAND flash, SPI NAND flash and SPI NOR flash capacity is only around 70% of the current demand. The shortfall of these particular products could last until at least the end of 2022 when newly invested capacity should come online. “Owning their own fab, however, allows an IDM to become more flexible and grow with their customers.”

According to Chen, Winbond regularly invests in additional capacity expansion along with the technology migration needed to meet future customer demands. It is only by working closely with customers that an IDM can form accurate estimates of future needs.

That relationship is a two-way street and forming a close relationship with an IDM can also bring extra benefits to customers. Instead of being a small fish at a large foundry, customers can influence the IDM and gain information on changes in the supply chain in advance of competitors.

“An example of this type of exchange occurred last Autumn when large, mainstream suppliers decided to begin withdrawing from the DDR3 and SLC/SPI NAND segments. In the same timeframe, demand for DDR3 jumped by 50% as new TV, set-top box, WiFi and IP camera designs came online,” explained Chen. “Winbond had seen signs that the major players were preparing to leave the market and knew through the close relationships it had fostered with customers that the new designs were in preparation. It realised there would likely be an upcoming shortage of speciality and SLC/SPI NAND and informed its customers, while adding capacity, adjusting its fab mix, and quickening its technology adoption of DRAM.”

According to Chen, this quick action allowed customers to secure their supply before the shortage occurred and let them get to market quicker.

“A similar thing happened with SPI NOR, when the foundry sources of SPI NOR IC design houses decided to switch to logic ICs for new applications such as 5G, AIoT, TWS and Chromebooks. Again, Winbond customers were informed early and had time to ensure their supply chains were intact while competitors struggled.”

Current shortages, however, have also affected IDMs too.

“Demand, at present, is around 150% of Winbond’s capacity, with the company giving priority to existing customers - an additional benefit for forming relationships. The same prioritisation does not usually happen with large fabs, who do not have the same close relationships with smaller customers.

“Rather than this decision being detrimental to new customers, the potential to secure products at a defined time, even in the future, and the prospect of forming a closer supplier relationship has seen Winbond’s customer base grow,” said Chen.

The company works closely with these new customers to help them as much as possible to promote future cooperation. It also tries to prevent unbalanced situations where some customers have excess inventory while others struggle to get parts.

The effects of the chip shortage will continue well into the future. It has damaged long existing supply chains and forced companies to adapt their just-in-time philosophy to new conditions.

“Nobody is certain how things will change going into the future, if things will return to normal, or supply chain changes will remain,” warned Chen. “But forming close partnerships with suppliers is always a good business strategy and looking to IDMs as a source for the future could benefit product designers in more ways than just having a reliable supplier.

“It could put you at the front of the queue in challenging times like these and ensure you are first to know about changes in the industry.”

Author
Neil Tyler

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