Industrial Automation Magazine India

Increasing digitalisation, EVs driving significant demand for semiconductors

Published on : Thursday 07-09-2023

Sunil David, Digital Technology Consultant.

What caused the severe disruption in the semiconductors supply chain during the Covid pandemic?
The severe disruption in the semiconductor supply chain during the Covid-19 pandemic was caused by a combination of factors, leading to a perfect storm that impacted various stages of semiconductor manufacturing and distribution. Here are some key factors that contributed to the disruption:
 
Increased Demand for Consumer Electronics: As people around the world shifted to remote work, online learning, and entertainment at home, there was a surge in demand for laptops, tablets, smartphones, gaming consoles, and other consumer electronics. This sudden increase in demand put significant pressure on semiconductor manufacturers to ramp up production.

Supply Chain Disruptions: The pandemic led to disruptions in the global supply chain, affecting the transportation and logistics of semiconductor components and raw materials. Lockdowns, restrictions, and border closures in various countries hindered the smooth flow of goods, causing delays in production and delivery.
 
Factory Shutdowns and Labour Shortages: To contain the spread of the virus, many semiconductor manufacturing facilities had to shut down temporarily. Additionally, there were labour shortages due to quarantines, illness, and travel restrictions, leading to reduced production capacities.
 
Increased Demand for Automotive Electronics: As the automotive industry rebounded faster than expected after the initial lockdowns, there was a surge in demand for automotive electronics, including microcontrollers, sensors, and other semiconductor components, further straining the supply chain.
 
Prioritisation of High-End Products: During the pandemic, some semiconductor manufacturers shifted their production priorities to focus on higher-margin and high-end products, leaving less capacity for lower-margin components that are essential for many industries.
 
Fire Incidents and Natural Disasters: Certain incidents, such as a fire at a major semiconductor factory in Japan and natural disasters like earthquakes, disrupted production lines and caused further delays in supply.
 
Geopolitical Tensions and the Russia Ukraine War: Geopolitical tensions between certain countries also affected the semiconductor supply chain, leading to trade restrictions and export controls on certain technologies and components. The Russia Ukraine war which started in late Feb 2022 also had a big impact on the semiconductor supply chain as Ukraine supplies close to 50% of the world’s neon gas, which is used in the production of semiconductor chips. Governments and large Enterprises had to scramble to obtain alternative supplies as the supply was tightening and prices had dramatically increased.
 
All of these factors combined to create a severe disruption in the semiconductor supply chain during the Covid-19 pandemic, causing shortages, longer lead times, and increased prices for various electronic products.
 
Is indiscriminate use of high end semiconductors for applications that do not use their full potential, adding to the crisis? In other words, is there a case for rationalisation of use?
Yes, the indiscriminate use of high-end semiconductors for applications that do not fully utilise their capabilities can indeed contribute to the crisis and semiconductor supply chain challenges. There is a strong case for the rationalisation of semiconductor use to address these issues more effectively.
 
Here are some reasons why rationalisation is important:
Supply and Demand Imbalance: When high-end semiconductors are used excessively in applications that don't require their full potential, it creates an imbalance in supply and demand. The supply of high-end semiconductors might not be sufficient to meet the increased demand from various industries, leading to shortages for critical applications.
 
Resource Utilisation: High-end semiconductors often require more resources and complex manufacturing processes. When they are used in applications that don't benefit from their advanced features, it leads to the inefficient use of resources, energy, and production capacity.
Increased Costs: High-end semiconductors tend to be more expensive due to their advanced technologies and complex designs. Using them unnecessarily can drive up the overall cost of electronic products, impacting both manufacturers and consumers.
 
Impact on Lower-End Applications: When high-end semiconductors are prioritised for various applications, it can lead to a shortage of lower-end or mid-range semiconductors. This scarcity can affect industries that heavily rely on cost-effective components, such as entry-level consumer electronics or certain industrial applications.
 
Innovation and Productivity: By rationalising the use of semiconductors and matching the right level of technology to the application's requirements, there is room for innovation in both semiconductor design and product development. This can lead to more specialised solutions and increased productivity in various industries.
 
Environmental Concerns: The production of high-end semiconductors can have a higher environmental impact due to their complex manufacturing processes. Rationalising their use can help reduce the environmental footprint associated with semiconductor manufacturing.
 
To address these issues, it is essential for industries and manufacturers to consider the specific requirements of their applications and adopt a more tailored approach to semiconductor selection. This could involve using lower- and mid-range semiconductors where appropriate, optimising designs for efficiency, and exploring more specialised solutions for specific use cases. Collaborative efforts between semiconductor manufacturers, industries, and policymakers can also contribute to a more rational and sustainable use of semiconductor technologies.
 
The US and Europe with active government support has embarked on a massive production spree to correct the geographical imbalance. How will this impact the supply situation?
The active government support and the massive production spree embarked upon by the US and Europe to correct the geographical imbalance in semiconductor manufacturing can have several impacts on the overall global supply situation.
 
The Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS Act), signed into law last year in August, is designed to boost US competitiveness, innovation, and national security. It also aims to catalyse investments in domestic semiconductor manufacturing capacity and seeks to jump-start R&D and commercialisation of leading-edge technologies, such as quantum computing, AI, clean energy, and nanotechnology, and create new regional high-tech hubs and a bigger, more inclusive science, technology, engineering, and math (STEM) workforce. The CHIPS Act directs $280 billion in spending over the next ten years. The majority—$200 billion—is for scientific R&D and commercialisation. Some $52.7 billion is for semiconductor manufacturing, R&D, and workforce development, with another $24 billion worth of tax credits for chip production. There is $3 billion slated for programs aimed at leading-edge technology and wireless supply chains.
 
The European Chips Act had reached a political agreement on 18 April 2023 and thus seeks to strengthen the semiconductor ecosystem. It is composed of a Communication, which spells out the European Strategy and rationale behind the Chips Act, a proposal for a Regulation, and a Recommendation to Member States. The European Chips Act will reinforce the semiconductor ecosystem in the EU, ensure the resilience of supply chains and reduce external dependencies. It is a key step for the EU’s technological sovereignty. And, it will ensure Europe meets its digital decade target of doubling its global market share in semiconductors to 20%.
 
With the US and EU clearly focusing on building their semiconductor ecosystems so as to reduce its dependency on Taiwan and China over the next few years, it has its potential effects. Some of the effects are as follows:
 
Increased Supply Capacity: The increased investment and support for semiconductor manufacturing in the US and Europe will likely lead to the establishment of new fabrication facilities (fabs) and expansion of existing ones. This will result in a boost in overall supply capacity for semiconductors, potentially alleviating some of the supply constraints.
 
Diversification of Supply Chain: With the US and Europe investing in domestic semiconductor production, there will be a diversification of the global semiconductor supply chain. Reducing dependence on a single region (such as Asia) can enhance supply chain resilience and mitigate the impact of disruptions caused by geopolitical or other factors.
 
Short-Term Challenges: While the investments in new fabs and expansions are underway, there may be short-term challenges as the production facilities are being built and ramped up. It takes time to establish new fabs and achieve full production capacity, so there may be initial delays in significantly increasing supply.
 
Competing for Resources: The expansion of semiconductor manufacturing in the US and Europe could lead to increased competition for essential resources, such as advanced machinery, materials, and skilled labour. This competition might affect the supply chain for these resources and potentially result in higher costs.
 
Impact on Existing Suppliers: The increased local production in the US and Europe could impact existing suppliers in other regions, especially if demand shifts away from their facilities. This could lead to adjustments in global supply dynamics and potential disruptions in the short term.
 
Enhanced Global Collaboration: The initiatives by the US and Europe to strengthen their semiconductor manufacturing can foster increased collaboration and partnerships between different regions. This can lead to technology-sharing agreements, joint ventures, and collaborative efforts to address global semiconductor demand.
 
Influence on Pricing: As supply capacity increases with the establishment of new fabs, it could have an impact on semiconductor prices. A more balanced supply-demand equation might help stabilise prices and prevent some of the recent sharp price fluctuations.
 
It's important to note that these impacts will take time to fully materialise, as semiconductor manufacturing is a complex and capital-intensive industry. Government initiatives and investments will play a significant role in shaping the outcome, but various factors, including market demand and technological advancements, will also influence the overall supply situation. Additionally, the global semiconductor industry is highly interconnected, and changes in one region can have ripple effects worldwide. As such, global cooperation and coordination will remain crucial for achieving a sustainable and robust semiconductor supply chain.
 
As a highly capital intensive industry with heavy demand on resources like land, water and electricity, how difficult is the task of ramping up capacities?
Ramping up capacities in the semiconductor industry is indeed a highly complex and challenging task due to its capital-intensive nature and heavy demand on resources like land, water, and electricity. Several factors contribute to the difficulty of increasing semiconductor production capacity:
 
Capital Intensive: Building and equipping semiconductor fabrication facilities (fabs) require enormous upfront investments. Fabs consist of intricate cleanroom environments with advanced manufacturing equipment, making them one of the most expensive types of industrial facilities to construct and operate.
 
Lead Time: Constructing a new fab from scratch or expanding an existing one is a time-consuming process. It can take several years, from planning to full production, before a new facility becomes operational. During this lead time, demand may continue to outpace supply, leading to short-term supply constraints.
 
Technology Complexity: The semiconductor industry operates on cutting-edge technology, and each successive generation of semiconductor chips involves increasing complexity and precision. Ramping up capacity for advanced nodes demands not only investment but also expertise in developing and implementing sophisticated manufacturing processes.
 
Environmental Concerns: Semiconductor manufacturing consumes substantial amounts of water and electricity, and it generates various types of waste. Scaling up production capacity must be balanced with environmental sustainability, making it essential to address water usage, energy efficiency, and waste management.
 
Competition for Resources: As governments and companies globally seek to expand semiconductor capacity, there is increased competition for essential resources, such as high-purity water, rare materials, and skilled labour. This competition can lead to supply chain challenges and potential cost escalations.
 
Supply Chain Complexity: The semiconductor supply chain is highly interconnected, with many suppliers providing critical equipment, materials, and components. Ramping up capacity requires careful coordination and management of the entire supply chain to ensure timely delivery of all necessary inputs.
 
Regulatory and Permitting Challenges: The construction of new fabs and expansions may involve navigating complex regulatory processes and obtaining various permits from local and national authorities, adding further time and cost to the ramp-up process.
 
Despite these challenges, the semiconductor industry continually strives to increase capacity to meet growing global demand. Governments and companies are investing heavily in new fabs, partnerships, and research and development to accelerate the process and address supply constraints. Additionally, advancements in process technology and manufacturing techniques, such as automation and advanced process nodes, are being explored to enhance production efficiency and capacity. However, achieving a substantial increase in capacity remains a long-term endeavor that requires careful planning, substantial investments, and collaboration across the industry.
 
India too has embarked on a government backed initiative for creating a semiconductor ecosystem. What is the present status in terms of implementation?
Prime Minister, Shri Narendra Modi, inaugurated SemiconIndia 2023 in Gandhinagar, Gujarat late July 2023. With the theme “Catalysing India’s Semiconductor Ecosystem” the conference objectives were to exhibit India’s semiconductor strategy and policy and with a clear vision to position India as a global hub for semiconductor design, manufacturing, and technology development. The ‘Semicon India 2023‘ conference clearly  emphasised  investment opportunities in India’s semiconductor sector through informative presentations and stimulating panel discussions led by industry experts. The event objectives were to accelerate the progress of the semiconductor industry by facilitating networking, technology demonstrations, and lucrative business prospects. Throughout the three-day conference, which concluded on July 30, experts from various parts of the world specialising in semiconductor chip, display fab, chip design, and assembly had convened to share their insights on emerging opportunities in India. Well known companies such as Foxconn, Micron, AMD, IBM,  Vedanta,  NXP Semiconductors, STMicroelectronics,  Infineon Technologies, and Applied Materials, among others had actively participated in the event.
 
Micron Technology India, an India-based producer of computer memory and computer data storage including dynamic RAM , flash memory and USB flash drives, and a fully owned subsidiary of US-based Micron Technology, has already announced plans to invest $2.7bn to open a new semiconductor plant in Sanand, Gujarat. The new plant is expected to create 5,000 jobs.The facility will enable assembly and test manufacturing for both DRAM and NAND products and cater to demand from both Indian and Global  markets. Phase 1 of the operation will cover 46,500m of cleanroom space and will become operational at the end of 2024. Phase 2 will cover similar space and operations to phase one, and is slated to open towards the second half of this decade.
 
In June 2023, Applied Materials had committed an investment worth $400 million over four years to build an engineering centre in Bengaluru that will focus on developing and commercialising technologies for semiconductor manufacturing.
 
Taiwan based Electronics giant Foxconn plans to apply separately to set up a semiconductor manufacturing unit in India after recently exiting a JVwith Vedanta. The move is aimed at taking advantage of the huge incentives offered by the Govt of India under its semiconductor manufacturing policy.The new development has been triggered following its exit from a semiconductor joint venture with Vedanta recently.  The company had exited from the $19.5 billion JV with the mining baron Anil Agarwal's Vedanta Ltd. The company found it difficult to rope in a Technology partner.
 
Vedanta is eagerly awaiting government approval for incentives related to a modified semiconductor production plan as per latest reports. Vedanta group chairman Anil Agarwal had recently said that the first phase of its semiconductor project will involve $5 billion investment of the overall $20-billion planned outlay, and the venture will be ready with made-in-India chip in 2 ½ years. Vedanta has engaged with over 100 global suppliers and ancillary industries, which will play a vital role in the semiconductor and display ecosystem.
 
Government of India had decided to invite fresh applications for setting up of a Semiconductor Fabs and Display Fabs in India from June 01, 2023 under the Modified Semicon India Programme. The applications will be received by India Semiconductor Mission, which will be the designated nodal agency and will be responsible for implementing the Modified Semicon India Programme for development of the semiconductors and display manufacturing ecosystem in India.Under the Modified Programme, Fiscal Incentive of 50% of the total project cost will be available to companies/consortia/JVs for setting up of Semiconductor Fabs in India of any node. Also,a fiscal incentive of 50%  of the project cost will be available for setting up of Display Fabs of specified technologies in India.The application window of “Modified Scheme for setting up of Compound Semiconductors/Silicon Photonics/Sensors Fab/Discrete Semiconductors Fab and Semiconductor ATMP/OSAT facilities in India” is open till December 2024. Application window of Design Linked Incentive Scheme is also open till December 2024. As on date 26 applications have been received under DLI Scheme and five applications have been granted approval.
 
Digitalisation in industry in general and the electrification of mobility with future autonomous operations are developments that will need semiconductors in bulk. Will the world have enough capacity?
The increasing digitalisation in various industries and the electrification of mobility, coupled with the future prospects of autonomous operations, are indeed driving a significant demand for semiconductors. As these technologies continue to advance, the world will face substantial challenges in meeting the growing need for semiconductor production capacity.
 
While the semiconductor industry has historically shown remarkable progress in scaling up capacity to address rising demand, there are several factors to consider when assessing the world's ability to meet this exponential need:
 
Capital Intensive Nature: Building new semiconductor fabrication facilities (fabs) requires substantial capital investment, and the construction process itself is time-consuming. The cost and lead time associated with building new fabs can limit the speed at which capacity can be expanded.
 
Technological Advancements: As technology advances, semiconductor designs become more complex and require more advanced manufacturing processes. Producing chips with smaller process nodes becomes increasingly challenging and may reduce overall production capacity.
 
Resource Constraints: The semiconductor manufacturing process demands specific resources like water, rare materials, and highly skilled labour. Ensuring a steady and sufficient supply of these resources globally can be a constraint on capacity expansion.
 
Geopolitical Factors: Geopolitical tensions, trade policies, and export controls can impact the global semiconductor supply chain, affecting the availability of critical components and materials.

Environmental Considerations: Scaling up semiconductor production could raise environmental concerns, particularly regarding water usage, energy consumption, and waste management.
 
Despite these challenges, the semiconductor industry has consistently shown resilience and adaptability in the face of rising demand. Governments, industries, and semiconductor manufacturers are actively collaborating to address these issues and find innovative solutions. Additionally, advances in technology, such as process node improvements, 3D stacking, and the use of advanced materials, can help improve chip efficiency and increase capacity.
 
To ensure a sustainable semiconductor supply chain, it is crucial to strike a balance between demand and capacity while prioritising innovation, resource efficiency, and environmental sustainability. Moreover, global collaboration and coordination will play a vital role in addressing future challenges and maintaining a stable and robust semiconductor ecosystem.
 
Are there any new technology trends that are likely to revolutionise semiconductor production either with materials other than silicon, or some other breakthrough?
Yes, there are several new technology trends that have the potential to revolutionise semiconductor production and impact the industry significantly. Some of these trends include:
Beyond Silicon: While silicon has been the dominant material for semiconductor manufacturing for several decades, there are emerging alternatives that hold promise for the future. One such example is gallium nitride (GaN) and silicon carbide (SiC), which offer higher power efficiency and performance in certain applications, like power electronics and high-frequency devices.

3D Stacking and Packaging: 3D stacking and packaging technologies involve vertically integrating multiple layers of chips, either through through-silicon vias (TSVs) or advanced interconnects. This approach allows for denser and more powerful chips, reducing interconnect delays and enhancing performance while optimising space utilisation.
 
Extreme Ultraviolet Lithography (EUV): EUV is a cutting-edge semiconductor lithography technique that uses extreme ultraviolet light to print smaller features on chips. This enables semiconductor manufacturers to produce chips with smaller process nodes, enhancing performance and energy efficiency.
 
Neuromorphic and Quantum Computing: Neuromorphic computing, inspired by the human brain, and quantum computing are transformative technologies that have the potential to revolutionise computing paradigms. These technologies may require new semiconductor materials and design approaches to harness their full potential.
 
Materials Innovation: Advancements in materials science are continually driving new possibilities in semiconductor manufacturing. Materials like graphene, 2D materials, and perovskites offer unique electrical and mechanical properties, making them candidates for future semiconductor applications.
 
Internet of Things (IoT) and Edge Computing: The rapid growth of IoT and edge computing demands low-power, high-performance chips for various applications. Innovations in semiconductor design and fabrication are needed to meet the specific requirements of these decentralised systems.
 
AI Hardware Accelerators: As artificial intelligence applications expand, dedicated AI hardware accelerators are becoming increasingly important. Customised hardware, including specialised AI chips, will play a vital role in accelerating AI computations efficiently.
 
System-in-Package (SiP) Technology: SiP technology integrates multiple chips, sensors, and components into a single package, enabling smaller form factors and more versatile devices. SiP is gaining traction in mobile devices, wearables, and IoT applications.
 
Advanced Packaging: Advanced packaging techniques, such as fan-out wafer-level packaging (FOWLP) and chiplets, provide opportunities for modular, cost-effective, and heterogeneous integration of components.
 
These trends represent exciting opportunities for semiconductor manufacturing and could lead to revolutionary advancements in the industry. Each of these developments has its unique challenges, and successful implementation will depend on research, collaboration, and investment from various stakeholders in the semiconductor ecosystem. As technology continues to evolve, these trends will shape the future of semiconductor production and drive innovations across industries.

(The views expressed in interviews are personal, not necessarily of the organisations represented)

Sunil David has 28 years of experience in the IT and Telecom industry of which close to 20 years was with AT&T, one of the top Communication Service Providers of the World and a Global Fortune 100 Firm. Until recently, Sunil was the Regional Director (IoT) India and ASEAN for AT&T India where he was responsible for building the IoT strategy, Sales, Business Development and also worked on building a robust IoT partner ecosystem; and was also actively involved in a number of marketing initiatives to help enhance the AT&T brand in the IoT space.
 
In his new phase of life, Sunil is Advising and Consulting AI and IoT Startups that are aspiring for the next level of growth.
 
Sunil has been a recipient of a number of Awards and Recognitions including 6 awards in 2021 and 3 this year from various Industry bodies and media conglomerates in recognition for his work in Digital Technology advocacy, Digital Skilling initiatives, contributing inputs towards IoT policy creation for India and for contribution to National Institute of Electronics and Info Tech, an Autonomous Scientific Society of MeITY, Ministry of Electronics and IT, Govt of India for contributing inputs on the syllabus and specific courses in the Emerging tech space (IoT, Cloud, AI ) that needs to be incorporated into the Curriculum of State and Central Govt Universities. NASSCOM Foundation and IBM India have also planted tree saplings in Sunil’s name for his contribution to the Tech Industry.
 
In August 2021, Sunil was awarded as ‘India’s Fastest Growing Digital Evangelist’ for FY 20-21 by a large media conglomerate Asia One Magazine at the 14th Asia Africa Business and Social Forum. The same month he was also conferred with the ‘CXO Excellence Award 2021’ by CXOTV part of TechPlus Media Group and joining the league of League of Outstanding Technology Leaders of India. This award was given on the basis of peer recommendations from the Industry.