650 Group offers thoughts on the state of the global semiconductor industry.
Semiconductor shortages continue to make headlines impacting almost every industry from automotive, healthcare, consumer, and into all aspects of the data center. Semiconductor shortages have their roots in 2020, with COVID-19 causing a lack of investment in new capacity as well as a significant decrease in orders. Other industries absorbed the decline in orders.
For example, the automotive sector slashed orders for semiconductors, and consumer electronic devices picked up that capacity because of a surge in demand to support WFH. When the automotive industry tried to increase orders on a better economic outlook, the suppliers could not respond because that capacity was now allocated elsewhere. Exacerbating the issue is increased political instability and limited, if any, secondary capacity in the world for critical components.
Semiconductors are the new steel industry powering the 21st-century economy forward. Like the Industrial Revolution of the past, many verticals stall when the base component of semiconductors cannot fulfill demand. However, unlike in the past, the capital investment in fabs and related supply chain aspects is massive and takes years, so adding capacity is not a simple task.
The automotive industry is learning this the hard way right now, with many automotive plants being idled or shut down fully because of parts that cost less than $1. You cannot build 99% of a car, and you cannot make 99% of a data center. With most manufacturing capacity in semiconductors outside the US and limited control in the hands of the companies placing orders, the industry will address this shortage differently than in the past.
A multi-source solutions strategy can help address the semiconductor shortage with a long-term plan. If we have billions of IoT devices shipping per year and many devices having significant chip counts in them, the market must change.
The solution is forming today, and actions are taking place at all levels of the US government and private sector, including a summit held in the White House to discuss the problem and find solutions. The US must increase capacity to address demand and directly invest a significant amount of capital into building fabs and supply chain resiliency via incentives and policy changes. It is in the US’s best interest and should be a national priority. Today’s shortage is shaving billions off of GDP growth at a time when the economy needs to recover and jobs need to form in a post-COVID-19 world. Imagine the subsequent shortage with no investments today.
Customers should seriously consider using multi-source semiconductor solutions. Besides addressing the supply shortages, customers get other benefits, including faster innovation, better products, and ultimately lower cost and healthier supply chains. Datacenter equipment is unique. Customers have historically had multiple silicon suppliers for memory, CPU, HDs/SSDs, but not so much in networking. Now is an excellent time to revisit this strategy. Networking also has uniqueness in moving from trailing edge process geometry to leading-edge with 400 Gbps and will remain leading edge as we look towards 800 Gbps, ZR/ZR+, and silicon photonics. We cannot move forward to higher speeds in networking without increasing the number of vendors, suppliers, and fabs. This is even more so when one looks into the short-term future of new networking demand driven by new applications and workloads centered around edge-computing, AI/ML, and AR/VR.
The future is bright, and innovation is widespread. We need to ensure the investment is made today to guarantee one of the core building blocks of the economy can be sustainability manufactured going forward and not end up in a perpetual boom/bust cycle in fab and related supply chain investment.