Source: The content is compiled by Semiconductor Industry Watch (ID: icbank) from Reuters
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To get some insight into the challenges President Joe Biden faces in alleviating a semiconductor shortage that’s plaguing automakers and other industries, consider the example of an IONIQ 5 chip supplied by a U.S. company for Hyundai Motor Co.’s new electric vehicles. Production of the chip, a camera image sensor designed by On Semiconductor, begins at a factory in Italy, where complex circuits are photocopied onto silicon wafers.
The wafers are then sent first to Taiwan for packaging and testing, then to Singapore for storage, before being sent to China for assembly into cameras, and finally to Hyundai's component suppliers in South Korea before arriving at Hyundai's vehicle factories.
A shortage of image sensors has caused Hyundai Motor to idle its factories in South Korea, making it one of the latest automakers to be hit by a global supply crisis that has crippled production at several automakers including General Motors Co., Ford Motor Co. and Volkswagen AG.
The image sensor’s tortuous journey shows how complicated it will be for the chip industry to increase production capacity to address current shortages and revive U.S. chip manufacturing.
U.S. President Joe Biden convened a meeting of semiconductor industry executives in Washington on Monday to discuss solutions to the chip crisis, the latest move in a broader effort to strengthen the U.S. domestic chip industry. As part of a $2 trillion infrastructure proposal, he also proposed investing $50 billion to support domestic chip manufacturing and research. According to him, this will help the United States win the global competition with China.
For this reason, we believe that most of the money will likely go to Intel, Samsung and TSMC, which will spend billions of dollars to build advanced chip factories in the United States. However, industry executives say it is critical to address the broader supply chain, and the Biden administration faces complex choices about which elements to subsidize.
“We can’t possibly rebuild the entire supply chain from upstream to downstream in a single given location because it’s too expensive,” David Somo, senior vice president at ON Semiconductor, told Reuters.
The United States now accounts for only 12% of global semiconductor manufacturing capacity, down from 37% in 1990. More than 80% of global chip production is now in Asia, according to industry data.
Currently, producing a single computer chip can involve more than 1,000 steps, 70 regions, and dozens of specialized companies, most of which are in Asia and largely unknown to the public.
The process starts with a slab-sized slice of raw silicon. In chip factories called fabs, circuits are etched into the silicon and built up on its surface through a series of complex chemical processes.
The next step is packaging, which illustrates the supply chain challenges well.
Wafers come out of fabs, each with hundreds or even thousands of fingernail-sized chips on it. They have to be cut into individual chips and then put into packages.
Traditionally, this means placing each chip on a "lead frame" and soldering it to a circuit board. The entire assembly is then encapsulated in a resin box to protect it.
The process is so labor-intensive that chip companies outsourced it decades ago to countries and regions including Taiwan, Malaysia, the Philippines and mainland China.
Packaging itself has its own supply chain: South Korea’s Haesung DS, for example, makes packaging components for automotive chips and then exports them to Malaysia or Thailand for customers such as Infineon and NXP. These companies, or in some cases subcontractors, then assemble and package chips for automotive suppliers such as Bosch and Continental, which in turn supply the final product to automakers.
"If they (the Biden administration) want to have the kind of success they want in semiconductors, then they will have to help rebuild the U.S. packaging industry," said Dick Otte, CEO of California-based chip packaging company Promex. "Otherwise, it's a waste of time." Dick Otte went on to say
But newer chip packaging processes require far less labor, which may lead some U.S. chipmakers to think they can bring it back from abroad.
In October, SkyWater Technology, a chip foundry in Minnesota, took over a plant in Florida to build advanced packaging production lines. "There is an industry-wide agreement that all of this needs to happen here," said Thomas Sonderman, CEO of SkyWater Technology.
Tony Levi, a professor of electrical and computer engineering at the University of Southern California, said rebuilding the U.S. packaging industry would not only insulate chip companies and their customers from political risks, but also help them escape the long cycles involved in making new chips.
By doing more work locally, U.S. chip companies could create smaller chip production runs more frequently, speeding up innovation and potentially creating the ability to adapt more quickly to demand.
Intel, TSMC, Samsung and GlobalFoundries all have existing or planned factories in Arizona, Texas and New York, which would be suitable for aggregating supply chains including packaging, Levi said.
Levi said: "The United States is good at system design, but product design and manufacturing are closely linked."
Still, it remains to be seen how a Biden administration will balance the needs of the chip industry’s many sub-sectors.
Numerous companies, many of them overseas, supply key manufacturing materials, including wafers and gases. The precision tools used in advanced chip production are mostly made in the U.S., but that’s not the case for factory components, such as the robotic systems that churn chips through various processing steps.
On top of that, some in the industry believe the U.S. needs to support not only new cutting-edge fabs, but also older technologies. Tyson Tuttle, CEO of Silicon Labs, an Austin-based chip design company, noted that the acute shortage is for more mature chips.
“We have a capital mismatch in the semiconductor industry,” with most of the money going to the most advanced technologies, he said.
The chip packaging industry has been under heavy price pressure, resulting in lower profit margins than chip foundries and chip design companies, said E. Jan Vardaman, president of TechSearch International Inc. “From a financial and economic point of view, it doesn’t make sense for them to make big investments.”
"Just throwing money at it is not going to solve the problem. Because it's a very complex problem."
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