Article
4 minute read 21 May 2021

Easing the semiconductor shortage

Chip companies can’t build new plants overnight, but they can make things better quickly

4 minute read 21 May 2021
Dan Hamling

Dan Hamling

United States

Duncan Stewart

Duncan Stewart

Canada

Demand for semiconductors has risen so quickly—and so unpredictably—that manufacturers need to use every available trick to maximize supply.

Not even industry experts foresaw the worst semiconductor supply chain crunch in years, and it has hit hard, driven by strong COVID-19-driven demand, orders being canceled and then renewed due to fluctuations in end markets, and even fires in some key plants. And with the latest chips increasingly critical to a wide range of products,1 the current chip shortage is affecting manufacturers worldwide. US and global automakers are feeling the pinch and pushing for political action,2 and smartphone providers are warning investors.3

For now, the onus is on chip companies to ramp up production immediately. Building a semiconductor wafer fabrication plant from scratch takes a couple of years, but upgrading certain key pieces of hardware and software, reprioritizing scheduling, and sharpening the pencil on asset utilization can quickly speed production, much to the relief of anxious customers.

Samsung, a top semiconductor supplier as well as a smartphone maker, and others are well aware that serious semiconductor supply shortages cannot be made up quickly.4 Ramping up chip fab capacity involves sourcing a complex mix of ultra-clean factory floorspace, customized capital-intensive equipment, and specialized materials through a complex global supply network.5 And the front-end wafer fab is not the only bottleneck: The back-end chip assembly and test stages also involve challenges,6 including finding leadframe and substrate supply and matching automated test equipment (ATE) configurations to a dynamic demand mix.

Few predicted the explosion in demand (see figure) that led to the crunch. In December 2020, a leading industry research firm predicted that spending on chips and the equipment for making chips would rise 5–6% in 2021.7 A month later, the same firm ratcheted up the number8—and did so again in February.9 By March, the annual growth forecast had climbed all the way to 19–21%.10

If industry experts are having trouble forecasting the chip industry, it’s no surprise that chip makers, chip buyers, and policymakers are trying to catch up as well.

Still, even if chip makers can’t set up new plants immediately, there are steps that they can quickly take to alleviate this crunch—and, inevitably, future crunches as manufacturers strive to align capacity to a dynamic and uncertain demand outlook.

Considerations for semiconductor leaders

Equipment upgrades. Companies should focus on upgrades now and new equipment over the longer term. Even with available floor space, procuring and installing new equipment is unlikely to add capacity fast enough to address a near-term surge in demand. Equipment build lead times keep increasing, limited at times by the supply of chips that the equipment itself is used to manufacture. Upgrades (hardware or software) of existing equipment are more quickly obtained and can provide improved throughput or new capabilities over various manufacturing stages. Feature licenses for ATE, for example, can be electronically downloaded and deployed to the ATE to provide more test capacity for, for instance, automotive components that need to be expedited.

Scheduling (re)prioritization. Prioritize chip production and reduce nonproduction activities without sacrificing quality. Opportunities can be identified to eliminate or at least temporarily delay certain engineering lots in fab, noncritical characterization sampling in test, or other nonproduction activities that consume capacity. More aggressive test time reductions at different stages (wafer sort, final test, burn-in test, etc.) may also be pursued—so long as, of course, speed doesn’t jeopardize quality and reliability.

Asset utilization. As with scheduling optimization, semiconductor companies are already focusing on asset utilization. Still, there are some actions to take that may improve constraint utilization by a few points. For instance, companies can refocus operator allocation and scheduling to reduce tool assist response times. An emphasis on resources and supplies being available and staged for use at critical—for example, bottleneck—tools and tool clusters, so those tools can keep running without missing a beat, can also enhance overall production output.

  1. Duncan Stewart, In a smart business world, the semiconductor industry plays an ever-larger economic role , Deloitte Insights, April 22, 2021.View in Article
  2. Jack Ewing and Neal E. Boudette, “A tiny part’s big ripple: Global chip shortage hobbles the auto industry ,” New York Times , April 23, 2021; Sam Shead, “The global chip shortage is starting to have major real-world consequences ,” CNBC , May 7, 2021; David Shepardson, “Eight U.S. auto state governors urge Biden to press semiconductor firms on chip shortage ,” Reuters , February 26, 2021.View in Article
  3. Sohee Kim, “Samsung warns of severe chip crunch while delaying key phone ,” Bloomberg , March 17, 2021.View in Article
  4. Eun-Young Jeong and Dan Strumpf, “Why the chip shortage is so hard to overcome ,” Wall Street Journal , April 19, 2021.View in Article
  5. Willy Shih, “TSMC’s announcement of a new U.S. semiconductor fab is big news ,” Forbes , May 15, 2020.View in Article
  6. Mark Lapedus, “Shortages, challenges engulf packaging supply chain ,” Semiconductor Engineering , February 18, 2021.View in Article
  7. Andrea Lati, “Semiconductor sales were 3% above 2019 for the last week of the year; stocks soared ,” VLSI Research, January 11, 2021.View in Article
  8. Andrea Lati, “Semiconductor manufacturing models and America’s strengths and weaknesses; test equipment outlook; stocks were mixed ,” VLSI Research, February 22, 2021.View in Article
  9. Andrea Lati, “Consistent semiconductor equipment market growth has returned; Foundry and IDM capital expenditure; stocks fell ,” VLSI Research, March 1, 2021.View in Article
  10. Ibid.View in Article

Cover image by: Viktor Koen

Technology, Media & Telecommunications

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Paul Silverglate

Paul Silverglate

Leader | Deloitte US Technology Sector

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