Semiconductor Disaster Zoom, Semiconductor Disaster Zoom

Despite the economic recovery, many industries are not working due to a lack of microchips. Car manufacturers are particularly affected, especially in Europe. A continent that, again, is under severe penalties for dependence on Asian companies. Six questions to better understand the causes and consequences of this crisis.

What is a semiconductor?

A semiconductor is a material that has the specificity of being more or less a conductor of electric current. This conductivity depends on the raw materials that are part of it (silicon, germanium, silicon carbide, etc.) and its production process (introduction of impurities to modify the electrical properties of semiconductors).

Semiconductors have the shape of ultra-thin plates that are stacked on top of each other. They can be compared to microscopic transistors. They are used for the production of electronic chips that equip themselves through the devices we use every day (cars, airplanes, home appliances, smartphones, related items, watches, toys, etc.).

Who makes them?

Semiconductor manufacturing is a complex process that requires huge investments. That is why several companies in the world are able to do that and why most electronic chip manufacturers leave this activity to very specialized foundries.

The largest, TSMC, is located in Taiwan. It alone produces more than 50% of the world’s semiconductors and holds 85% of the global market for semiconductors smaller than 7 nm. The thinner the semiconductors, the more it is possible to stack them inside an electronic chip. And the more semiconductors the chip contains, the more powerful it is. Therefore, these ultra-thin semiconductors are highly valued by processor manufacturers who equip the most modern equipment (computers, smartphones, etc.).

Korean Samsung is also capable of producing this type of semiconductor. On the American side, Ta-i-ta announced the production of its first 7 nm chips for 2023. As far as IBM is concerned, it should launch a processor of this category intended for its servers by the end of the year, and recently announced that it will be able to produce semiconductor sheet metal only 2 nm thick. According to IBM, this would increase the performance of the 7 nm semiconductor by 45% and reduce its power consumption by 75%. IBM did not specify the release date of these 2 nm semiconductors.

For the record, Europe, whose semiconductor companies hold just over 8% of the world market, does not have a larger foundry capable of producing components below 22 nm. The two European leaders are German Infineon and French-Italian STMicroelectronics.

What is the origin of the shortage?

There are many reasons for this shortcoming. First, there is the Covid-19 crisis, which has slowed the production of these foundries, while at the same time the demand for electronic products (laptops, televisions, game consoles) has increased due to closedness and remote work.

Added to this is the demand for electronic chips boosted by the application of 5G technology, which includes the production of new antennas, but above all new, more powerful smartphones. Not to mention the increasingly sustainable success of related facilities and the rapid recovery of Chinese domestic consumption, after the first wave of the epidemic.

According to IDC, the global semiconductor market grew by 5.4% in 2020, despite the health crisis, reaching $ 442 billion. It could reach $ 476 billion in 2021 and thus experience an increase of 7.7% compared to the last financial year.

What are the consequences of this crisis?

This shortcoming leads, above all, to production delays. This is the case in computing and electronics, where delivery times are getting longer. Delays accompanied by rising prices caused by a “shortage” of available products and rising maritime transport costs (the Drewry Composite Index, which measures container transport costs, rose 290% in one year).

Inflation that could continue to rise given TSMC’s announcement of a 10 to 20% price increase.

Why is the car hit so hard?

In the automotive sector, this crisis has forced leading manufacturers to temporarily close some of their factories. This was especially the case with world leader Toyota, which had to cut production by 40% in September. A slowdown that affected Chinese, American, European and Japanese sites. In the archipelago, 14 factories have been put on hold or their work has been significantly slowed down.

In fact, with the exception of Tesla, the largest carmakers have been forced to cut production by 2021 due to a lack of semiconductors. Renault predicts a production loss of 500,000 vehicles in 2021, and Stellantis (PSA, Fiat-Chrysler) of 1.4 million vehicles. For its part, Volkswagen has just announced a shortfall in production of 600,000 vehicles in the 3rd quarter of 2021 and is counting only on annual production close to that of 2020. Crisis year in which its sales fell by 15.2% compared to 2019.

For IHS Markit, the impact of the shortage, and mostly of semiconductors, should lead to a 12% drop in global vehicle production in 2021, a 10.6 million unit shortfall.

For the record, more than 1,000 electronic chips are needed to produce a thermal vehicle (and even more for a hybrid or 100% electric vehicle). In addition, many of the chips used, less efficient than those for computers and high-tech equipment, are mass-assembled, controlled or encapsulated, at low cost, in countries such as Malaysia or Vietnam. Countries where Covid-19 circulation has imposed strict health restrictions for months. The situation should therefore not improve before, on the one hand, increasing the production capacity of the main semiconductor foundries and, on the other hand, a real restart of producer subcontractors, who cannot work only with a return to normal in Southeast Asia.

When will he return to normal?

Expected for the end of the summer of 2021, the return to normal will not happen, according to expert estimates, before mid-2022. In an interview with the Wall Street Journal on July 22, Pat Gelsinger, CEO of Intel, even saw that this shortcoming continues until 2023.

Outside of this crisis, and to prevent it from happening again, TSMC has just announced a $ 100 billion investment to increase production over the next 3 years. Intel is also expected to build three new semiconductor plants, including two in the United States and one in Europe. On the old continent, this represents an investment of 93 billion dollars in 10 years for an American manufacturer. The location of this factory will be revealed by the end of the year, according to AFP.

As far as Europeans are concerned, they want to regain some autonomy by doubling the capacity of factories in the European Union by 2030. An ambition that will be supported by the European framework law, the “European Chips Act”, which aims to defend European technological sovereignty. France will, at its level, allocate 6 billion euros out of 30 billion euros in its investment plan, to help strengthen national semiconductor production.

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