It’s been quite a time for the entire electronics supply chain. Here’s what we know. This current strain on chips and substrates was not caused by any one thing. Consider that we’re still in the midst of a global pandemic that has simultaneously catapulted our need for high volumes of chips while impacting lead times for manufacturing and delivery. We’re also all embroiled in the Tech War between China and the U.S. that is impacting our globally integrated industry. Throw in an automotive industry that wasn’t prepared for the slow down caused COVID 19, followed by a rapid rebound, and you’ve got a recipe for potential disaster.
Last week at Virtual IMAPS DPC, Jan Vardaman went out on a limb to assemble a panel of industry experts to tackle some hard questions about whether our electronics supply chain is broken, and if it is, how do we fix it? These brave souls include:
- Ivor Barber, Corporate VP Packaging AMD
- Veer Dhandapani, Sr. Director Automotive Package Innovation, NXP Semiconductors
- Rebeca Jimenez, Corporate VP, Advanced SiP Business Unit, Amkor Technology
- Paul Mescher, Senior Director IC Packaging Technology Microsoft
- Devan Iyer, Educator, and Executive Advisor. Technology Management
Together, they put the current situation in perspective, and offered some practical wisdom for how to address the current crisis, while also preparing for the future.
The Automotive Electronics Supply Chain
Because the automotive industry is at the forefront of the current shortages, Vardaman started her line of questioning here. She asked the panel to comment on maintaining inventory the practice of dual sourcing.
Overall, the panelists agreed that dual sourcing has become standard practice, and in some cases “mandatory” particularly in the automotive industry. The greatest benefit of dual sourcing is that it mitigates risks of potential shortage, particularly in the event of natural disasters that might impact a supplier’s ability to fulfill its orders.
Mescher noted that dual sourcing works when we’re dealing with products that can be manufactured in tens of million units per year. But if it’s lower volume, it’s a different discussion. Bottom line, the decision for dual sourcing is generally a decision made by balancing the cost, complexity, and qualification of a device.
Dhandapani said that for NXPs products that go into consumer products, the company doesn’t dual source. Instead, they have targeted conversations with their suppliers.
Jimemez cautioned that in the case of substrate materials, qualification of a new supplier takes time, so doesn’t immediately solve the issue. Additionally, considering the current chip and substrate shortages, it’s difficult for companies to carry enough inventory to meet dual sourcing needs.
Electronics Supply Chain Inventory Control
Inventory control tricky business. The lower the volume of product required, such as mid-range devices for data centers and high-end compute, the more difficult it is to stockpile.
At some point, we need to stop making decisions based on the cost/complexity/qualification balance and think more about the importance of supply continuity. Or as Mescher so eloquently stated. “We’re making decisions that make sense if I was Wall Street, vs. making decisions as if I’m Department of Defense, or the Automotive Industry, where supply trumps pretty much everything.” He says managing inventory is more a matter of accurate forecasting and understanding what needs to be built.
Mescher also pointed out that there has always been a “semi-broken conversation”’ in the supply chain, and our current situation is just shedding light on that. People double-book because they don’t know what they will need, then cancel the second orders when they see there will be an oversupply, and that impacts the entire system.
The bottom line: unlike the automotive industry. Just-in-time manufacturing doesn’t really work for the semiconductor industry, noted Barber. Right now, while he reports that AMD has a solid stash of chips, they are experiencing a “hand-to-mouth” situation with substrates and will use “any that we can get our hands on.” The company is actively expanding its product portfolio to include different types and volumes and is adding supply partners to ensure a consistent supply.
Like Barber, the other panelists noted that supply shortages are not impacting their leading-edge chip supplies, but rather trailing edge nodes, and substrates that are impacting assembly and test.
Changing the Conversation
If anything, this electronics supply chain situation has shed light on the need for different and more consistent conversations between the parties involved. And that’s a good thing.
Without stepping on the toes of direct partners, Mescher says he sees “engagement at management levels in background conversations that we’ve never had before.” The goal is to get a better understanding of future needs.
Iyer says we need a cohesive and collaborative approach to roadmapping. For example, what needs to be in place at the substrate and design level to support next-generation chiplets? Meeting high-speed requirements in a multichip solution is not an easy task for substrate designers. According to Barber, with chiplets, we’re dealing with more layers and larger body sizes, suggesting that we need to look closely at manufacturability and yield to maximize the number of good substrates. Standardizing on panel sizes will make multi-sourcing possible.
One positive takeaway for Jimenez is the realization that to keep the entire supply chain healthy, we need more collaboration.
Rapid Fire Response to Final Questions:
With all the foundry expansion, will we end up with an over-capacity of chips?
Jimenez says no. There are other applications besides automotive that are increasing our global chip demand. She says COVID raised our awareness of how much we all depend on technology. Computing, 5G, and the data revolution all are applications that require data storage and memory.
Will substrate Capex be able to keep up?
Barber said substrate expansions will be slower. But he also said that fab expansion will take time and will not solve the current supply chain issues.
Will assembly and test also add capacity to keep up?
Jimenez says OSATs like Amkor are also investing to keep up with the growth.
What about skilled labor?
Opinions were mixed. Jimenez sees the talent shortage as a regional issue, and that there is more available in some areas than others. She also noted that shifting to automation for some jobs will help solve that problem.
Dhandapani pointed to the high attrition rate in Taiwan. The strategies used there include overstaffing and working with universities to create a robust college graduate program. He said understanding the geography you’re in is key to attracting and retaining talent.
Mescher said because we’ve made engineer jobs as simple as possible to reduce the possibility of errors, we’ve lost the ability to inspire people to improve skills and make them value a job.
Iyer says we need to nurture the talent pipeline. Because of the interdisciplinary nature of advanced packaging, in particular, we need to bring more visibility to it as an attractive career.
What will the impact of government investments be to sponsor local infrastructures in the US, Europe, and China to minimize our dependency on Taiwan?
Jimenez pointed out that the industry is used to a global supply chain and does not see localization as a replacement for that.
Barber explained how the geopolitical concentration of capabilities can cause its own supply chain issues, and that the industry will support spreading the capabilities not because they are anti-one-another, but because it makes sense to do so.
Summing it up
Vardaman wrapped up the panel, noting that while we shouldn’t dwell on the problems, there are a lot of issues in the electronics supply chain that will be solved best by better communication between the participants going forward. There is a clear need for better planning. Some suggested solutions included coming up with ways to improve substrate yields, and standardizing panel sizes so that dual sourcing can be supported.
While many fabs have taken on the packaging of advanced node devices, they certainly won’t be doing all of it, as the profit margins are still too low. However, as advanced packaging becomes more complex, it’s important to talk about it upfront rather than just “throwing silicon over the wall.” We need to make our supply chain work smarter, and everyone involved recognizes this and is working hard to improve the current situation.
Where is the silver lining? The growth supercycle is expected to continue. So despite the current conundrum, the semiconductor industry is a very good place to be!