Semiengineering: The global "chip shortage" is coming to an end, and signs of overcapacity are gradually emerging

The current wave of semiconductor and IC packaging shortages is expected to continue into 2022, but there are also signs that supply may eventually catch up with demand.

The same is true for capacity, materials, and equipment in the semiconductor and packaging sectors. After a period of shortages in all market segments, the current view is that while some product shortages, such as automotive chips, may continue in 2022, most chip supplies may return to relatively normal by mid-2022. But this depends on several economic factors, so all of this could change overnight.

The semiconductor industry has been going through a tumultuous period. Business looked bright in early 2020, but the market fell after the COVID-19 outbreak. Throughout 2020, countries took various measures to mitigate the pandemic, such as stay-at-home orders and business closures. Economic turmoil soon ensued.

By mid-2020, the IC market rebounded as the stay-at-home economy boosted demand for computers, TVs, and other consumer electronics. Shortages emerged for consumer chips and advanced IC packaging. Then, in the first half of 2021, a surge in demand for cars, smartphones, and other products led to chip shortages in those areas. Today, many types of chips are in tight supply with long lead times, while some others are more readily available. It depends on the chip and the supplier.

Global chip manufacturing capacity is also tight, especially for 8-inch fabs with more mature processes. For some time, 8-inch fab capacity has been sold out, and this situation is not expected to change soon. And now, many foundry customers are preparing for a new round of price increases across the board. Meanwhile, in packaging, some packaging types will continue to be in short supply, and capacity is tight in many areas. Lead times for advanced equipment are long.

The semiconductor shortage situation is not all doom and gloom. "Except for some products, the supply and demand situation is expected to be resolved mainly in the first half of 2022 or the second half of 2022," said IBS CEO Handel Jones in a new report. "Many factors have contributed to the strong demand for semiconductors. However, some of the factors that have driven past demand growth are weakening due to market saturation. Consumer purchasing power will weaken due to the reduction of stimulus measures and the impact of high inflation."

There are also some bad signs on the supplier side. According to IBS, overcapacity could occur in the second half of 2022 or sometime in 2023, depending on the product.

It is impossible to explain the situation of each semiconductor product or package, each of which has its own supply and demand background. However, there are several key products that can provide some insights into the situation. These include application processors, MCUs, PMICs and WiFi chips, as well as various packaging technologies.

Fab

The integrated circuit industry has experienced its ups and downs over the years. The current recovery is one of the largest in recent records. Overall, the semiconductor market is expected to reach $542.55 billion in 2021, up 21.62% from 2020, according to IBS. The market is expected to grow by 7.13% in 2022, IBS forecasts.

According to TEL, the wafer fabrication equipment (WFE) market is expected to grow 40% in 2021. "The WFE market is expected to see significant expansion due to a sharp rise in demand for leading-edge logic chips and memory," TEL President and CEO Toshiki Kawai said in a speech.

Nevertheless, the semiconductor industry designs and manufactures a large number of different chips, such as analog chips, GPUs, MCUs, memory, microprocessors, and power semiconductors. GPUs, processors, and other advanced logic chips are produced in 12-inch wafer fabs using a variety of process technologies from 16nm/14nm to 5nm nodes.

From 16nm/14nm to 5nm, chipmakers relied on finFETs. “Compared to previous planar transistors, the fin contacts the gate on three sides, which allows for better control of the channel formed within the fin,” said Nerissa Draeger, university program director at Lam Research.

12-inch fabs also produce chips at mature process nodes from 65nm to 28nm. Meanwhile, other chips are made in older 8-inch fabs using processes from 350nm to 90nm. Many chips are also produced in fabs at smaller wafer sizes, such as 6-inch, 4-inch, etc.

Currently, mature process nodes in 8-inch and 12-inch fabs are tight, if not sold out. "Over the past few years, demand has surged for a wide range of chips manufactured on 8-inch and mature CMOS technology nodes ≥ 28nm, whether on traditional CMOS, bipolar CMOS DMOS or RF-SOI based process platforms. These devices include MCUs, PMICs, digital display driver ICs (DDICs), RF ICs and image signal processing (ISP) wafers required to manufacture back-illuminated CMOS image sensors. This demand is also supported by technology trends in multiple market segments," said David Haynes, managing director of strategic marketing at Lam Research.

“Supply issues for automotive semiconductors are well documented, but at the same time, demand is increasing for consumer products, new 5G-enabled devices, and display applications,” Haynes said. “The situation is further complicated by the fact that many of the IDMs and foundries that make these chips produce not one but multiple products. Historically, they have been able to rebalance fab capacity to meet growing demand for a certain product type, but it is difficult or impossible to adjust output in this way when demand for so many products surges at the same time. While global capacity has increased for some device types, such as display drivers, recent reports suggest that supply and demand balance has not yet been achieved across the industry.”

All in all, foundry capacity is tight. Jason Wang, co-president of UMC, said, "Looking ahead to the fourth quarter, we expect wafer shipments and ASP trends to remain strong. Capacity utilization of 8-inch and 12-inch facilities will continue to remain at full capacity."

Whether it is mature process nodes or leading-edge nodes, wafer fab capacity is expected to be tight in the foreseeable future. This depends on the production process and suppliers. "While we do not rule out the possibility of inventory adjustments, we expect TSMC's capacity to remain very tight in 2021 and throughout 2022," TSMC CEO Wei Zhejia said in a recent conference call.

Gartner analyst Samuel Wang summarized the situation by saying: "Foundries are mostly booked for the first half of 2022, and some have signed long-term agreements of 3-4 years with fabless customers. Gartner's assumption is that chip inventory will reach normal in the second quarter of 2022. Shortages of various components from small suppliers may last longer."

Application processor issues

Meanwhile, wireless is the largest segment in semiconductors, accounting for 40% of the total business, according to IBS. Within wireless, 5G smartphones and related infrastructure are the main drivers for many chips. Overall, 5G smartphone shipments are expected to reach 578 million units in 2021, up from 225 million in 2020, IBS said. While 5G is growing in many regions, China's smartphone market is slowing.

5G smartphones are composed of multiple chips including application processors, CMOS image sensors, memory, PMIC, and RF. Application processors are cutting-edge devices that integrate CPU, graphics, and AI functions on the same chip.

Application processors continue to grow in complexity

Image source: Semiconductor Engineering

Apple's new iPhone 13 uses the A15 application processor, which is a 15 billion transistor design based on TSMC's 5nm process. Many other phones use Qualcomm's Snapdragon 888, a 5nm SoC.

These chips are produced by foundries. Today, TSMC and Samsung are the only foundries capable of making 7nm and 5nm chips, and both are working on 3nm. Intel, which recently re-entered the foundry business, is ramping up production of 10nm and 7nm and working on 4nm.

Demand for cutting-edge 5G-based application processors and chipsets has been strong for some time. But foundries appear to be slightly short of capacity for these chips. “The wafer capacity shortage is likely to persist until the fourth quarter of 2021 or the first quarter of 2022,” said Jones of IBS.

How long the capacity shortage lasts depends on several factors. "The latest designs such as Apple A15 and Qualcomm Snapdragon 888 are 5nm technology, and plan to migrate to 3nm in 2022," Jones said. "If 3nm smartphone chipsets are launched in the second half of 2022, then 5nm and 7nm capacity may become surplus in the third quarter of 2022 or the fourth quarter of 2022."

That may be changing. Analysts say Apple's iPhone 14, scheduled for 2022, was supposed to use TSMC's 3nm process for its application processor. However, now the iPhone 14 is expected to use 4nm. Analysts say Apple's iPhone 15, to be launched in 2023, will use a 3nm application processor. In other words, TSMC's 3nm revenue growth has been delayed until 2023.

All in all, the 3nm production ramp-up for all parties is a moving target. "There are signs that both TSMC and Samsung are delaying the increase in 3nm wafer production," Jones said.

This isn’t the only problem for Apple and other smartphone suppliers. In its most recent quarter, Apple saw a $6 billion shortfall in sales due to a shortage of chips and manufacturing capacity. The problem isn’t a lack of access to leading-edge nodes, but rather a shortage of mature process chips.

According to KeyBanc, Apple's sales have been hurt by shortages in several areas, including OLED touchscreen controllers, which are made using a mature process to control the display.

Chips at other mature nodes are also in short supply, including Wi-Fi 6 chips. Wi-Fi and some RF chips are produced at 28nm, 22nm and 16nm processes. According to IBS, the shortage of Wi-Fi and other RF chips may continue until the second quarter of 2022, or even the third quarter of 2022.

PMICs for smartphones and other products have also been in short supply. PMICs are used to control the flow and direction of electricity and are manufactured using processes ranging from 180 nm to 40 nm. The shortage of PMICs is expected to continue until the second quarter of 2022 or the third quarter of 2022, according to IBS.