Semiconductors

Impact of the macro environment changes on the semiconductor market

【The original report for this translation was issued in April 2021. Things may have changed since then.】

The macro-environmental factors that have had a large impact on the semiconductor market in the global economy in 2020 are the transformation of existing business and operations from the influence of COVID-19 and market fragmentation due to the trade friction between the U.S. and China. These two factors have brought about major changes in the global semiconductor market structure and business practices of the industry. In particular, work-from- home ("WFH") policies have resulted in an acceleration of digital transformation in the semiconductor industry, which has already had the technological groundwork in place, but long-standing business practices have resulted in only gradual implementation up until now.

Changes in the global market and dX directions

From the perspective of the semiconductor market structure, the trade friction between the U.S. and China has resulted in the emergence of an increasing number of non-U.S. companies. Some of the major markets that had been built around the X86¹ showed signs of transitioning to new architecture technologies particularly in logic products.

Meanwhile, various companies have performed operational reviews in order to answer society's demand for COVID-19 responses. These are efforts to use digital technology to transform business processes which are traditionally designed around physical movement and contact between people and objects. It should be noted that, in this case, the simultaneous implementation of reforms by numerous companies against a common social background go beyond improving business efficiency within a specific company to changing the business practices of the entire industry.

When using "dX" as a term to indicate digital transformation, Deloitte Tohmatsu Group’s definition does not have the introduction of digital technologies as the main focus. Rather, dX is defined as the fundamental transformation of business itself using digital technologies as tools. The operational transformations companies have made due to influence of COVID-19 could be considered as a good example of dX under this definition. For Japanese semiconductor companies, dX has become an important item in management agenda for understanding the industry's structural changes and feeding this back into the company's strategies.

The semiconductor industry is characterized by a broad value chain structure that spans from design and development to manufacturing and sales. This chapter takes a broad perspective in examining dX directions in the areas of development and design, manufacturing, and sales and marketing with the aim of deriving hints for Japanese companies.

dX directions in development/design areas

We assume that there are three main areas for dX in development/design-related areas: 1. The rise of cloud-based development; 2. Launching new products (yield improvement); and 3. Software/program development.

1. The rise of cloud-based development

The market structure has changed significantly in development and design areas due to the impact of the trade friction between the U.S. and China, especially for logic products. Tighter regulations on U.S. exports to China have restricted Chinese companies' ability to procure semiconductors using U.S. technology, which has resulted in an acceleration of approaches toward using alternative technologies. For example, in CPU architecture areas, Chinese companies have made dramatic pushes toward the adoption of RISC-V² ISA³, which is open source and geopolitically neutral, in place of Western technologies such as X86 and ARM⁴. Alibaba has introduced this technology, as have major chip manufacturers including ANLOGIC⁵, Kannan (product name Kendryte)⁶, and GigaDevice⁷. The Huawei Group is considering its adoption, as well.

RISC-V is an ISA for next-generation CPUs with excellent power-saving performance and scalability, but its major disadvantage from the user perspective has been the lack of practical use cases⁸. However, this disadvantage is being eliminated through wider adoption and increasing numbers of practical use cases especially in China. Some Japanese companies are also starting to incorporate RISC-V into their product portfolios.

From a development/design perspective, it should be noted that many of the companies that commercially develop CPU cores using RISC-V technology provide cloud-based design environments⁹.

Design tools used in semiconductor design and development have traditionally been installed on dedicated workstations or on-premise servers. Because of this, supporting increasing numbers of remote workers would require large investments in network infrastructure. However, next-generation CPU architecture can be expected to support WFH more efficiently with the cloud-based development environment.

2. Launching new products (yield improvement)

The second area of dX development/ design is operations for yield improvements during the launch of new products. ProteanTecs¹⁰ provides analysis circuits as a form of IP (Intellectual Property). These analysis circuits can be installed on semiconductor circuits, and the company is developing services that use acquired data to achieve yield forecasting and test optimization. This advanced simulation technology has reduced the number of photomask re-designs and business processes unsuited to WFH, such as physically moving samples in order to evaluate them.

3. Software/program development

The third area of development/design concerns operations performed during software development by user companies adopting semiconductors, such as chip characterization evaluation. Traditionally, evaluation boards and testers for evaluating sample chips were established in offices mainly for security reasons. This made WFH difficult, and had a high risk of becoming a development bottleneck in the environment under COVID-19. However, in recent years, cloud-based platforms that provide physical evaluation environments via the internet have been announced, and it is predicted that there will be increased WFH support for chip evaluations. From the perspective of semiconductor user companies, the key will be in identifying effective platforms at an early stage and using those to streamline development operations. Meanwhile, semiconductor suppliers can expect marketing effect to user companies by offering their products to leading platforms. Both users and suppliers should keep a close eye on trends to see which platform will become the de facto standard.

dX directions in manufacturing areas

Acceleration of smart manufacturing and the promotion of partnerships with third-party companies

Next, we would like to discuss dX in the manufacturing domain, starting with changes in the external environment surrounding Japanese manufacturing industry. Currently, smart manufacturing is gaining speed in response to Industry 4.0 trends. According to Deloitte and MAPI's¹¹ October 2020 survey targeting more than 1,000 executives from manufacturing companies in North America, Europe, and Asia, 38% of factory budgets are being dedicated to smart manufacturing (particularly for yield management, synchronization of production plans, and visibility of factory operations). Additionally, 85% of operators said "building partnerships/ecosystems with third-party companies to realize smart manufacturing will be a source of competitive advantage"¹².

One of the factors behind this acceleration of smart manufacturing is the increased need for WFH initiatives due to COVID- 19, and Japan is no exception to this. For example, as of June 2020, 90% of companies with 300 or more employees in Japan have already implemented WFH¹³, and another survey shows that about 28% of manufacturers have adopted WFH for more than 50% of their operations¹⁴.

Furthermore, innovations in communication technologies such as 5G will provide a tailwind for the spread of smart manufacturing in Japan and the building of partnerships and ecosystems based on this concept.

Inter-company data platforms in semiconductor industry

There are barriers for manufacturing companies such as the lack of data needed for output that other companies have, or the inability to try new data analysis approaches without the support of the companies involved. In order to overcome these agendas, certain manufacturers have already moved from the phase of building closed internal data platforms and have started initiatives toward building data platforms shared with third-party companies or between entire ecosystems. One case study in the chemical industry is the adoption of the data platform provided by Citrine Informatics¹⁵ to build one of the world's largest materials databases integrating public and private information. Each of the participating companies have achieved increased efficiency in developing materials by sharing their academic papers, experimental data, and simulation data with each other¹⁶.

Meanwhile, in the semiconductor industry, it is predicted that many companies will continue to follow their existing practices of protecting their IPs and building closed infrastructures despite the new trend mentioned above. However, the semiconductor industry is the one that particularly needs to establish inter-company data infrastructures.

For example, advances in miniaturization and multilayering are making manufacturing processes more complex for semiconductor manufacturers. Given this, there may be great merit in sharing manufacturing data and using it for higher levels of yield improvements and enhanced mass production throughput. There are also concerns about the technical limits of miniaturization and exceeding manufacturing cost for multi-layering. Some posit that companies may need to consider new materials such as carbon nanotubes and to create new architectures by integrating logic memory functions. To respond to these concerns, companies should consider forming ecosystems composed of neighboring companies for big data sharing and analysis (Table 10-1).

On the other hand, players engaged in small-volume custom semiconductors such as AI and IoT chips are mostly fabless, foundry, and OSAT¹⁷ companies. Therefore, in order to achieve quick new product introduction and quality feedforward analysis throughout the entire supply chain, it is essential to build a data platform that connects the ecosystem between individual players. In particular, a certain number of small-volume manufacturers are trying to avoid concentrating on a single foundry/OSAT due to geopolitical risks associated with recent trade friction between the U.S. and China. In these cases, building a data platform for managing multiple foundries/OSATs becomes even more important. It could be also inferred that it is necessary to collect and analyze big data from each company in order to ensure product quality.

Trends for construction/utilization of data platforms in the semiconductor industry

As a matter of fact, semiconductor equipment manufacturers and data platform vendors have already begun to provide solutions for inter-company data platforms.

For example, ASML worked with Microsoft to begin use of equipment start-up support services utilizing mixed reality (MR) to address the physical separation caused by COVID-19¹⁸. Though some customers have voiced concerns about IP-related risks, the company has secured consent through close negotiations, asking customers to weigh their concerns against losses caused by downtime from equipment start-up delays. As a result, more than 75 HoloLens units have been installed in Asia, North America, Europe, and other regions¹⁹. Based on the positive response to this initiative, the company plans to move toward establishing an industry standard for remote support using MR.

Lam Research made a public announcement in April 2019 of its platform, "Sense.i", that enables semiconductor manufactures to capture and analyze data. Sense.i is an equipment platform that enables continued production without wet cleaning maintenance by keeping chambers in a constant vacuum state. This could be seen as an example of a case study for leveraging data between companies²⁰. In the company's July 2020 policy announcement, the CEO repeatedly stated, "Advanced services are created through data, and collaboration is the key to success. It is paramount that semiconductor manufacturers and ecosystem partners share data with one another, and we hope to achieve continuous innovation by working together"²¹.

On the other hand, in the overall data platform vendor market, over 1,000 forms of platforms are already available. We are also seeing the emergence of vendors who provide platforms specializing in pre- and post-process management solutions for the semiconductor industry, such as OptimalPlus²², PDF Solutions²³, and Qualtera (Synopsys)²⁴.

It is certainly an option for companies to adopt the solutions provided by equipment manufacturers and vendors and use them to quickly establish inter-company data sharing platforms. In addition to that, companies may also consider the approach used in the Lam Research case study - proactively working with equipment manufacturers to establish data partnerships and develop cutting-edge technologies to reap the benefits.

Building a new cyber security industry standard

Although we have discussed the importance of inter-company data sharing within the industry, many companies are likely to consider such efforts to be premature due to concerns about damage to their IPs.

Concerning this point, in July 2020, the Semiconductor Equipment and Materials Institute (SEMI) announced its policy to provide SEMI Standards, which is a set of comprehensive cyber security specifications to be used as a reference in the semiconductor industry²⁵. This announcement was made in response to a doubling in the use of remote diagnostic and management software in the semiconductor industry from February and April 2020, with a record high from May to June. SEMI has involved industry leaders Intel and Cimetrix²⁶, as well as TSMC and the Industrial Technology Research Institute (ITRI)²⁷, in the development of both cyber security standards for equipment software and Fab internal networks²⁸.

Japanese semiconductor manufacturers should pay close attention these trends in cyber security standards, and consider building their own internal data utilization models as a stepping stone for future approaches, introducing inter-company data sharing platforms and then going on to establish ecosystems and partnerships.

dX directions in sales/marketing areas

Changes in customer contact points under COVID-19

In the last chapter, we would like to discuss sales and marketing areas, starting with the changes in customer contact points in the remote environment after the emergence of COVID-19.

The COVID-19 pandemic has led various companies to develop their WFH policies and has changed consumer purchasing behavior. In the semiconductor industry, as well, sales channels are changing due to restrictions on contact with customers which was generally performed through in-person meetings. Even companies with sales styles that have traditionally emphasized real- world customer contact are likely to have continued their activities by temporarily switching to online communication.

Currently, increasing numbers of workers are telecommuting. It is expected that this change is not temporary and will continue even after the pandemic comes to an end. Consequently, companies that seize on this change in customer contact as soon as possible may have an advantage in the future.

Concerning this point, we interviewed experts in the U.S., Taiwan, and China who are active in the global semiconductor industry. From the interview, we confirmed that they hold the same point of view that "digitalization will gain even more speed than it has currently and create changes in the points of contact we have with other people".

Specifically, there were opinions that assumed that trends toward shifting customer contact online will continue in the post-COVID-19 world: "face-to-face communication will decrease and shift to online formats, and there will be more solutions to fulfill this need" (Taiwanese semiconductor vendor). There was also a comment from a U.S. semiconductor vendor: "The lockdown has caused a huge increase in internet demand, and this has led to client demand. This trend is likely to continue even after the end of the pandemic".

Online and offline boundaries

In B2B purchases, the percentage of buyers who prefer to gather information online by themselves rather than interacting with sales representatives has grown²⁹. The survey results show that less than 40% of buyers make purchases through sales representatives as of 2020, and purchase activity through e-commerce sites and marketplaces is seen to be increasing³⁰.

In the semiconductor industry, digitalization has been emphasized especially by U.S. companies, and various efforts have been made toward it. This trend is expected to accelerate further under the current environment. Japanese semiconductor manufacturers may need to take concrete measures toward following this trend.

Digitalization trends in B2B business

In this section, we would like to present an overview of digitalization trends in B2B business by focusing on three points as material for considering measures to respond to digitalization.

The first trend is the increased leverage of digital technology for recognizing, understanding and fostering customer needs. Starting in 2020, webinars and online exhibitions have become increasingly popular due to the impact of COVID-19. In the areas of lead creation and negotiation opportunities, online activities that are not directly connected to offline sales have increased. And as more customers gather information online, pull-type content is becoming more effective in reaching customers that had previously been no direct contact. Specifically, tools such as PR, white papers, and social media are being used. There is also a trend toward increasing utilization strategies aimed at medium- to long-term market development rather than identifying short- term sales opportunities.

The second point is the formation of web communities with partner companies that promote development and sales. With increased access to information for customers, companies are starting to focus on the importance of online support for more specialized and challenging needs. For example, two-way communication is becoming more important than ever before; an increasing number of companies are going beyond one-way dissemination of information to promote their products and forming global communities and ecosystems that connect engineers and partners. As an extension of this trend, there is also movement toward introducing direct sales and e- commerce to strengthen direct customer contact without intermediaries such as trading companies or agencies.

For the final trend, we would like to focus on the streamlining of online, non-face-to-face, operations with a mixture of three factors, and IT infrastructure elements. While the introduction of digital initiatives has increased the number of contact points for customers to make purchases, there are cases where it becomes more difficult for companies to internally share customer information due to the back and forth between on- and off-line points of contact. It is also common to hear about organizational issues that make it difficult to incentivize the sales team for digitally generated leads. Furthermore, there are companies that have started considering (or have already implemented) organizations that oversee the handling of initiatives that differ from traditional sales and marketing areas of expertise, such as the utilization and management of digital content and media. There also are some cases where it has been necessary to change areas of expertise and the scope of sales activities in order to ensure lead quality, such as by establishing an inside sales department. From a management perspective, it is necessary to use methods of managing information on customer contacts and processes that cannot be covered by conventional sales activities.

As shown in Table 10-3, there are seven key points for strengthening when we consider dX initiatives in sales and marketing.
Carrying out all of these at the same time would be ideal if it were possible. In cases where this proves difficult, however, companies may wish to start by looking at each of these key points and assessing their own capabilities to determine the target areas they should strengthen.

Summary

To summarize the issues for each area that we have seen, as well as their solutions, the following elements have been identified.

Design/development

• Cloud-based development environments will become more common as next-generation CPU technology spreads due to trade friction between the U.S. and China.
• Increasingly sophisticated analysis services for data collected from
  semiconductors will reduce the number of prototypes during new product launches and reduce the time required to manufacture and transport samples for evaluation.
• New platforms for remote physical evaluation of chips are emerging,
  enabling characterization and other evaluation without the need to purchase samples or evaluation boards.

Manufacturing

• Semiconductor equipment manufacturers and data platform vendors are moving to build data platforms to improve manufacturing efficiency.
• The rise of vendors specializing in pre- and post-process management for the semiconductor industry will expand business opportunities for yield improvement and mass production throughput improvement through data sharing within and between companies.

Sales/marketing

• There will be increased opportunities for communication via the internet with customers without face-to-face contact.
• Specialized information provided online will play an increasing role in
  companies' purchasing decisions.
• Companies that are quick to seize on changes in customer contact points and respond to these at an early stage will have an advantage in the future.

The advancement of dX in the semiconductor industry is a double-edged sword for Japanese companies. While the advancement of dX creates intensified competition with foreign companies in the domestic market, it also provides opportunities to strengthen relationships with foreign customers and suppliers.

There are many global case studies of dX initiatives being leveraged successfully, and Japanese companies will need to innovate in ways that will enable them to win against those. The global best practices should be set as benchmarks, and rather than simply following them, companies will need to identify the areas where they have an advantage and build strategies to leverage those advantages. We hope that the case studies for each area introduced in this report will serve as starting points for companies in considering the directions of innovations for their businesses.

Authors

Yoshio Takechi
Deloitte Tohmatsu Consulting LLC Senior Manager

Assumed his current position after working in technical marketing and as a sales engineer in the semiconductor industry. He has experience in business consulting with a particular focus on the semiconductor industry in recent years, and his track record includes business strategy conception, pre- process factory establishment, smart factory concept creation, enhancing talent management for equipment technicians, and visualization of production indicators.
 

Eiji Kodama
Deloitte Tohmatsu Consulting LLC Manager

Assumed his current position after working at a major Japanese semiconductor manufacturer and at a think tank. Has engaged in projects in a wide range of fields, from strategy development to business model reform and system implementation support, mainly for technology companies in the semiconductor and AI industries. Has a track record of participation in numerous global projects.

Akira Ichimura
Deloitte Tohmatsu Consulting LLC Manager

Assumed his current position after working at a major consulting firm. Has engaged in end-to-end consulting for a wide range of B2B and B2C industries in projects that include marketing and sales strategy planning, operational reform, and site roll-outs. Has extensive experience solving issues related to CX/DX and digital/real channel mixing.
 

Mizuho Yajima
Deloitte Tohmatsu Consulting LLC Senior Consultant

Assumed his current position after working for a major Japanese precision chemistry manufacturer. Has a wide range of knowledge concerning manufacturer value chain construction due to experience holding concurrent positions in product planning, SCM, and overseas marketing in the company's medical equipment division. In his current position, he mainly engages in reforms for semiconductor company manufacturing areas, and has experience in conceptualizing and implementing plans for manufacturing support systems based on advanced technologies such as AI and IoT.

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