Wall Street Journal: Canon's second-hand lithography equipment prices have increased 17 times in 7 years

We typically associate tiny chips with the latest and greatest technology, but it turns out that most of the chips in the products we use are made using mature processes, according to the Wall Street Journal.

Wayne Lam, research director at technology consulting firm CCS Insight, said that more than half of the global semiconductor industry's revenue comes from these mature process chips, even though these chips are individually much cheaper than high-end processors for smartphones and laptops. A new, advanced Intel laptop processor chip costs hundreds of dollars. In contrast, many mature process chips cost only a few dollars, and some even only a few pennies.

Monthly unit sales of semiconductors since 2011, based on data from the Semiconductor Industry Association and World Semiconductor Trade Statistics

Image source: The Wall Street Journal

There are never enough of these cheap chips. They are used in cameras and other sensors in phones and cars, power-processing electronics, logic controllers for factory equipment and wireless communications. Shortages of these chips are at the root of auto industry production halts and Apple’s inability to meet demand for its latest iPhone.

The coronavirus pandemic has triggered the current chip shortage, which has led to the closure of chip factories and a surge in demand for work-from-home supplies and other products. But this is just the tip of the iceberg. In fact, demand for new and used equipment has been rising since 2016.

Part of the reason for the swell in demand is the growth of the Internet of Things over the past five years, said Hassane El-Khoury, ON Semiconductor’s chief executive. Not only are there chips in many of the things we buy, but there are more chips in many products than before. To ON Semiconductor, a chip in an electric car with driver-assist systems is worth 30 times as much as a gasoline car without such systems.

Chipmakers are responding to all this demand by promising to make even more chips than they do now, but there are many reasons why it’s difficult, if not impossible, to make enough chips to meet the needs of so many companies.

One is that even under the best conditions, it can take months for factories that make microchips to expand production capacity, partly because the process of making chips is very complicated, even for mature process chips.

Making chips with cutting-edge technology on 12-inch wafers requires extremely precise lasers, said Jamie Potter, CEO of Flexciton, a startup that makes software to help chipmakers optimize their product manufacturing plans. Those lasers can create features on tiny chips that are just 5 nanometers, or billionths of a meter, thick, which is only slightly wider than the width of a single strand of DNA. These chips, including the processors that power every new phone from Apple and Samsung, may need to go through 1,000 processes in different machines at a chip manufacturing plant. Chips made based on mature processes use 8-inch wafers and chip gate widths that are wider, but still require 300 processes in one machine or another.

This level of complexity means that even if a startup or inexperienced chipmaker can get access to chipmaking equipment, it will have a hard time making chips good enough to turn a profit. Even the best chipmakers throw away, on average, 10% of the raw materials used to make their chips.

As the chip shortage has intensified, so have bidding wars for used equipment: For example, a Canon FPA3000i4, a used 1995 lithography machine used to etch circuits and chips, was worth $100,000 in October 2014 but is worth $1.7 million today.

Potential buyers are now staying away because if they want to expand capacity to produce mature process chips, they face a dilemma: either pay too much for used equipment, assuming they can find one, or wait for new equipment, which can often take more than six months.

TSMC is expanding its production capacity to produce mature process chips by building new factories in Japan. Lisa Spelman, vice president of Intel's Data Center Group, said Intel has no plans to expand its production capacity to manufacture mature process chips, but will continue to focus on manufacturing the most cutting-edge chips.

Continuing to build more fabs to produce the latest generation of chips to expand overall global production capacity will help ease chip shortages. But to take advantage of this new capacity, manufacturers are required to transfer their chip design processes from mature processes to new processes, which is both expensive and time-consuming. For example, for automotive chip manufacturers, every time they launch a new product, they must verify the life and safety of the chip. Intel has set up a team to help automakers transition to new chip process technologies.

In products where technical security and durability have been verified, mature process chip technology is more popular. Even chip manufacturers are powerless to deal with chip shortages. For example, Infineon has enough production capacity to produce power processing chips, but cannot obtain enough mature process microcontroller chips that its own systems also need, which it has long outsourced to third-party manufacturers such as TSMC.