At the March 11 MEPTEC Luncheon at SEMI, Paul Pickering, Managing Director at Microtech Ventures, braved, together with a rather small audience, the ongoing Coronavirus threat. Because our semiconductor supply chain relies on many countries that are currently suffering under this virus, there is no better time to address this topic than right now.
Pickering briefly introduced Microtech Ventures, headquartered in Birmingham, Michigan. Founded in 2003 as MEMS Journal, it has now expanded into market research, strategy consulting for investors and entrepreneurs, business development, events management and recruiting. Microtech Ventures recently became a member of the 3D InCites Community.
Pickering emphasized that he extracted the content of this presentation from his recent 150-page supply chain study.
Decades of Decline in US Manufacturing
Pickering started with several worrisome numbers that demonstrate the decline of manufacturing in the United States:
- In 2019, manufacturing contributed $ 2.33 Trillion (=11.6%) to the US GDP. In 1970 manufacturing contributed 24%! (Source: Bureau of Economic Analysis)
- Companies in the US manufacture only 18% of the world’s goods today, China manufactures 20%.
- In 2019 the 12.85 Million US manufacturing jobs represented only 8.5% of the total workforce
- 89% of US manufacturers had to leave job openings unfilled in 2019. They predict to see a gap of 2.4 Million unfilled US manufacturing jobs from 2018 to 2028. This labor shortage is estimated to reduce the US GDP by $454 Billion
- Healthcare is now 18% of GDP; in 1960 in was only 5%
Confronted with the decline of these typically lower-wage manufacturing jobs, which are very important for having a thriving economy, the current administration decided to stop/reverse these 40+ yearlong trends with tariffs and new trade agreements. The US industry is now trying to adapt to the impact of these changes, e.g. by using highly automated production facilities, better educated and trained workers, protection and differentiating IP. Additionally, reducing energy use and deploying manufacturing flows with less of an environmental impact are some of the measures that can make US manufacturing more competitive. Most importantly, they’ll enable companies to pay higher manufacturing wages and attract more workers.
Technology is a Bright Spot
While manufacturing has progressively become a smaller part of the US economy, domestic high technology companies have rapidly gained importance, both in the US and in the worldwide economy. Development of new technologies and deployment of high-value products – e.g. 5G phones as well as AI / ML for industrial equipment, autonomous vehicles, and data centers – will gain importance as growth drivers for the US economy. Semiconductors are at the core of all these products and will strengthen the domestic industry and contribute significantly to US exports.
Semiconductors – the Heart of Every Electronic Product
From this point on, Pickering focused on the semiconductor industry. He showed how intertwined IC manufacturing is with Asian countries and emphasized that the US needs to import many raw materials for semiconductors, e.g. blank wafers. In addition to bulk silicon, SOI, Silicon Carbide, Silicon Nitride, and Gallium Arsenide substrates are imported today.
Pickering says he sees a bright future for the few vendors of semiconductor manufacturing equipment. The few large mainstream wafer fabs need equipment for the smallest feature sizes. The increasing demand for specialty technologies creates opportunities for smaller, highly specialized fabs and sales opportunities for less advanced, lower-cost equipment.
For large outsourced semiconductor assembly and test (OSAT) companies in Asia, Pickering expects that US tariffs and the need for more automation, as well as the growing demand for integrating multiple dice in advanced packages, will create new challenges and opportunities. Specialty assembly houses in the US will benefit from their geographic proximity to customers and can leverage their flexibility and technical expertise to grow their business.
Electronic manufacturing services (EMS) companies are already building manufacturing sites in the US. Highly automated board and system assembly flows will enable them to become cost-competitive with Asian factories.
Recovery from the Current Downturn in the US and Worldwide
As mentioned above, the Coronavirus and its impact on the world economy is on everybody’s mind today. While die-hard optimists hope that the current troubles will be short-lived, Pickering had a stern warning to present.
This graph (Fig 2) shows that it took about 10 years after the 2008/9 financial crisis until the Industrial Production Index (INDPRO) for the US, reached pre-crisis levels again. INDPRO measures the real output of all US-based manufacturing facilities. This graph is NOT intended as a forecast, just as an example of how complex and delicate supply chains are and how long it could take to fully recover from a major shock.
A Few Personal Comments
Last year I had the opportunity to attend and blog about an event Microtech Ventures organized in San Jose. See my blog here. I was impressed by Microtech’s ability to attract many competent speakers from different industries and their strong knowledge base, especially in the rapidly emerging MEMS and Sensors segment. Pickering’s MEPTEC Luncheon presentation was another opportunity to demonstrate the value of market analysis, strategic planning, and cooperation.
The uncertainty the current Coronavirus crisis brings, drove US equities – so far – down by about 20% and will inflict a lot of pain in many places. Let’s hope that governments and industries will work together to minimize damage to people worldwide and our complex industrial ecosystem. It shouldn’t need to take another 10 years to recover from this 2020 downturn. The high-tech industry in the US can play a major role in this recovery, not only domestically, but also for our international partners, and with it, strengthen the US position worldwide.
Note that MEPTEC’s all-day KNOWN GOOD DIE WORKSHOP 2020 has been rescheduled for September 16, due to the Coronavirus. See more about it here.
FYI, the MEPTEC Luncheon presentations are archived here.
Thanks for reading…Herb