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component shortage Electronic Components

Semiconductor Supply Chain Will Remain Vulnerable Without Robust Investment in Advanced Packaging

semiconductor

Semiconductor supply chain will remain vulnerable without advanced packaging investment

A new U.S. study has found that the advanced semiconductor packaging supply chain needs strengthening to meet the increasing demand for chips.

According to the report, without robust federal investment, the semiconductor supply chain in the U.S. faces an uphill battle to meet demand.

The study also highlights the crucial role of advanced packaging in driving innovation in semiconductor designs. At present, most of the chips in the U.S. are sent abroad for packaging and assembly into finished products. By moving packaging to North America, the entire electronics ecosystem can be improved.

The big players in the U.S. include Applied Materials, Amkor Technology, Ayar Labs, Lam Research, Microsemi Semiconductor and KLA-Tencor Corporation. These companies have seen unprecedented demand for semiconductor packaging, with growth predicted to rise as the world becomes smarter and more connected.

Other report findings 

The study also found that while the U.S. can design cutting-edge electronics, it lacks the capabilities to make them. This is creating an overreliance on foreign companies, including companies in China, creating considerable risk.

Looking at the most recent data, the study highlights that North America’s share of global advanced semiconductor packaging production is just 3 per cent. In other words, at present, the U.S. is incapable of assembling its own chips.

The study concludes that the U.S. also needs to invest in developing and producing advanced integrated circuit substrates. Advanced integrated circuit substrates are crucial components for packaging circuit chips. Currently, the U.S. has nascent capabilities, putting it behind Europe, China and most other countries.

What can we deduce from the report? That the U.S. is behind in most aspects of semiconductor packaging. Decades of low investment and overseas partnerships have led to a manufacturing ecosystem devoid of domestic talent.

“The findings of this report make clear that, as a result of decades of offshoring, the United States’ semiconductor supply chains remain vulnerable, even with the new federal funding that’s expected,” says Jan Vardaman, president and founder of TechSearch International and co-author of the report. 

As the U.S. comes to terms with its poor manufacturing ecosystem, China is ramping up assembly plants. In the face of increasing competition, the U.S. must focus on domestic investment in the near and medium-term. Without robust investment, they could fall further behind and lose out to their biggest competitors.

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Electronic Components

Why is chip sovereignty so important?

sovereignty

Why is chip sovereignty so important?

The US and EU are planning for chip sovereignty, aiming to defend domestic chip supplies and move manufacturing back home.

At first glance this is a tall order, considering most chips are manufactured in China and China controls 55% of rare earth metal production, but it is no less crucial to ensure that the Western world has access to the chips it needs.

The need for chip sovereignty

As the electronics industry battles on with chip shortages, we are seeing car plants cut production and companies delay product launches.

These are only a few examples of measures being applied like a band aid over a supply chains that have been bleeding for years.

We are in a situation where electronic components manufacturers are running at 99-100% capacity. Demand has soared for all types of components, from chips and memory to diodes and displays, squeezing supply chains.

Quite simply, demand is outstripping supply.

Many of the problems in the supply chain are geopolitical and logistical in nature, so by moving manufacturing back home, nations like the US and the EU will be able to control the supply chain (or most of it) and make supply meet demand.

What’s happening?

The EU will legislate to push for chip sovereignty with the forthcoming “European Chips Act”. It aims to stop European countries from competing with each other for chips, instead having them work together to compete globally.

The US isn’t legislating for chip sovereignty, but the Biden administration used its first budget proposal to Congress to call for domestic funding to fight semiconductor shortages with figures up to $50 billion being touted.

The UK is at odds with the US and EU with no chip sovereignty in sight.

Simply put, the UK is selling off chip firms, with $42 billion sold since 2010 (figures from US research). For example, In July, the UK’s largest chip plant was acquired by Nexperia – a Dutch firm wholly owned by Shanghai-based Wingtech.

This raises concerns over the future of UK chip manufacturing. Industry funding is seriously lacking too, putting the UK firmly behind the US and EU.

Companies are a successful case study 

As countries continue to struggle to meet demand for chips, some companies have taken matters into their own hands.

Apple produces their own chip called the M1 for the MacBook Air and iMac, and Google is doing the same with the Tensor chip, used in the Pixel 6 smartphone.

By moving away from Intel and Qualcomm respectively, Apple and Google have taken greater control over their supply chains, cutting out many geopolitical and logistical issues and unlocking greater pricing power.

With the global chip shortage showing no signs of abating and rare earth metal prices soaring, supply chains are only going to get squeezed more in the near future.

Chip sovereignty will be important for nations to meet demand and reduce reliance on China, Taiwan, and other countries a very long way away.

However, while the EU legislates for chip sovereignty, and the Biden administration pushes Congress for domestic chip funding, the UK continues to sell off chip firms to foreign investors. This will bite down hard when chip imports take a hit.