Allocations Lead to Obsolescence

Semiconductor manufacturers have been experiencing supply chain and fulfilment challenges since late 2020, partly driven by the strong rebound of demand from the automotive industry. Since then, various unforeseen events have led to the perfect storm of shortages that we are all are facing today. With the world’s attention on the overwhelming shortage market, it seems that we may have neglected the other ever present supply chain challenge — end-of-life components and ultimately obsolescence.

In an effort to ease the shortage situation, chip suppliers – according to Gartner – have initiated three key actions: 1) add new capacity, 2) improve allocation, and 3) ease order booking. For the purpose of this discussion, we’re going to focus on the implications of the first two actions.

Adding New Capacity

Across the globe we are learning about heavy investments in new or expanding fab facilities. Some foundries are rushing to buy used fab equipment or qualify chips to be produced in 300-mm fabs to reduce the constraints on 200-mm fabs.

While the additional capacity will indeed alleviate the pressure of the shortages and restore confidence in the market, it is not a fix that can happen overnight. These builds and expansions are not scheduled to begin until the second half of the year and some not until 2022, meaning that it may extend well into 2023 before they are fully operational.

Earlier this month, GlobalFoundries released their plans to “invest $1.4 billion in 2021 to raise output at three factories in the United States, Singapore, and Germany.”In China, Semiconductor Manufacturing International Corporation (SMIC) announced they will build a $2.35 billion 28nm wafer fab in Shenzhen, China with construction beginning in 2022. Now there is word of Intel’s plans to invest $20 billion for two new chip manufacturing facilities in Arizona and a further facility in the Republic of Ireland.

One of the areas that manufacturers may look to expand fab capacity is through mergers and acquisitions. Typically, M&A is to expand their technology portfolio, but with the current shortage market, it’s a race for the fab space and equipment. The common byproduct of M&As is having to make the decision to end-of-life or obsolete older and legacy products. It’s as simple as not having the bandwidth to continue to support older technology.

Improving Allocation

Improving allocation of chip production is another method that manufacturers are looking to ease the shortage situation. In a recent Gartner analyst report and in response to the Biden administration’s request, foundries are reallocating wafer production to the automotive sector. As recently as April 12, the White House held a virtual summit with top executives from the automotive, tech, biotech and consumer electronics industries to discuss the ever-growing chip shortage crisis.

The automotive sector has historically been a low priority to semiconductor manufacturers being that it only makes up less than 5% of the global usage of chips. Reallocating chips to offset the auto chip shortage only results in other issues down the line. That supply must be taken from another industry.

The result is the same as expanding fab capacity. For technology to continue to advance, there must be cuts to older products. Reallocating chip production for the automotive sector may be a temporary fix for the current shortage, but it has a ripple effect to the other industries, and ultimately manufacturers will have to make a judgement call on what parts they can continue to support and produce.

While the world is focused on the semiconductor shortage and mitigating the urgent need to secure their own supply, there is the looming and very real challenge that has always been there – obsolescence. This challenge is not new, and while in a ‘regular’ market this topic gains significant attention and budget, it’s not headline, front page news. Right now, urgency takes precedence for both spend and intellectual investment.  

Component suppliers continue to make critical components obsolete and increasing proportions of these obsolescence events are immediate and uncommunicated.

With connected distribution, Converge has pulse on what is happening in the market. Not just what is being discussed across the media channels, but the expertise to know how to read between the lines on what other implications are going to come. Beyond reacting to the shortages, partner with us to harness innovative resources and let’s keep your supply chain moving.

Talk to the experts at Converge and solve the future.

 

Sources:

Wang, Samuel, and Gaurav Gupta. Gartner, 2021, Global Semiconductor Supply Shortage: How to Respond?

www.ETAuto.com. “GlobalFoundries Pours $1.4 Bln into Fab Expansion amid Chip Demand Boom – ET Auto.”ETAuto.com, 4 Mar. 2021, www.auto.economictimes.indiatimes.com/news/auto-components/globalfoundries-pours-1-4-bln-into-fab-expansion-amid-chip-demand-boom/81322262 .

“Top China Chipmaker Gets State Funds for $2.4 Billion Plant.”Bloomberg.com, Bloomberg, 17 Mar. 2021, www.bloomberg.com/news/articles/2021-03-18/top-china-chipmaker-gets-government-funds-for-2-4-billion-plant.

Duffy, Clare. “Intel Investing $20 Billion in New US Chipmaking Plants as Part of Turnaround Plan.”CNN, Cable News Network, 25 Mar. 2021, www.cnn.com/2021/03/23/tech/intel-semiconductor-manufacturing-turnaround-plan/index.html.

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