24-05-2023 | By Robin Mitchell
As the world's semiconductor supply slowly stabilises after the COVID-19 pandemic, countries around the world continue to invest in local foundries to try and prevent future supply chain challenges. Now, the EU has announced that it will be piloting a new monitoring system that will look for weaknesses in the semiconductor supply chain. What challenges has the semiconductor industry faced over the past few years, what did the EU announce, and how could it help with future supply chain issues?
What challenges has the semiconductor industry faced over the past few years?
There is no doubt that the COVID-19 pandemic had a significant impact on the global semiconductor industry, leading to unprecedented supply shortages. As the world shut down to control the spread of the virus, the demand for electronic devices, such as laptops, tablets, and smartphones, surged due to remote work, online learning, and entertainment. However, the supply chains of the semiconductor industry faced severe disruptions due to lockdowns, labour shortages, and logistics challenges.
A significant challenge the semiconductor industry faced during the pandemic was the labour shortage caused by factory shutdowns and worker illnesses. As the virus spread, many semiconductor factories had to close temporarily, reducing production capacity. Additionally, many workers could not travel to the factories due to transportation restrictions, further exacerbating the labour shortage. This shortage of labour has had a ripple effect throughout the industry, leading to delays in production and shipment of semiconductor products.
In a study titled 'Challenges and opportunities for semiconductor and electronic design automation industry in post-Covid-19 years' conducted by Galia I Marinova and Aida K Bitri and published in the IOP Conference Series: Materials Science and Engineering, it was concluded that the chip shortage problem exposed weaknesses in the chip production ecosystem and supply chain. The authors emphasised that beyond the lack of materials or COVID-19 shutdowns, the main issue was a lack of proper decision-making. Leaders of companies failed to accurately assess demands and trends, and allocate resources accordingly. This resulted in an unstable situation that will take years to normalise. However, the chip shortage also opened up new possibilities and opportunities for change. Emerging companies may seize the opportunity to lead in this shifting landscape.
Another challenge faced by the semiconductor industry during the pandemic was the interruption of the global supply chain. The semiconductor industry relies heavily on international trade, and the closure of borders and ports made it difficult to transport raw materials, finished products, and equipment. This led to delays in the delivery of essential components, which in turn affected the production schedules of semiconductor manufacturers.
The pandemic also caused a shift in consumer demand, with a surge in demand for consumer electronics, such as smartphones, laptops, and gaming consoles. This sudden shift in demand caught many semiconductor manufacturers off guard, leading to a shortage of components such as memory chips, microcontrollers, and displays. As a result, the prices of these components skyrocketed, and manufacturers struggled to meet the demand from their customers.
The semiconductor industry also faced challenges related to the availability of equipment and infrastructure. Due to the pandemic, many factories had to implement new safety protocols and social distancing measures, reducing the number of workers on the factory floor at any given time. This, in turn, led to a reduced capacity for testing and quality control, leading to delays in product shipments. Additionally, the pandemic led to a shortage of equipment, such as wafer fabrication tools, which are crucial for semiconductor manufacturing.
The semiconductor industry's response to the COVID-19 pandemic has been a mixture of adaptation and innovation. Many companies have adopted remote working and virtual collaboration tools to minimise the impact of labour shortages and travel restrictions. Others have shifted their production lines to prioritise the manufacture of essential components, such as those used in medical equipment.
Innovations in manufacturing processes have also been developed to address the supply shortages caused by the pandemic. For example, the use of multi-project wafer runs, where several different designs are fabricated on a single wafer, has been adopted to optimise the use of production capacity. Additionally, the use of artificial intelligence and machine learning algorithms has been employed to predict supply chain disruptions and optimise production schedules.
EU announces new pilot program
Recognising the challenges faced by the semiconductor industry, and the resulting impact on numerous other sectors, countries worldwide have been quickly moving to secure funding for new foundries and encouraging stronger supply chains. The EU, for instance, introduced the EU Chips Act, which provides €43bn in funding to help companies create new foundries, establish new technologies, and even manage supply chains.
Now, the EU has announced that the €43bn funding will also be used to establish a new pilot program that will seek to implement monitoring tools and systems to identify the current state of the semiconductor supply chain and predict potential challenges before they occur. While details behind this pilot program are somewhat shrouded in mystery, it is likely that the program will take advantage of tools such as those provided by Datalynq, where real-time market data such as availability, lead times, and prices can be tracked. If combined with predictive algorithms, the pilot program can then try to identify industries that may soon be affected by shortages, thereby providing the EU with ample time to react.
It was also stated that the new pilot program, called The Semiconductor Alert System, will work with stakeholders to provide insight and raise awareness on potential disruptions in the supply chain. At the same time, EU-based organisations that are affected by shortages can fill out an online form to the EU Commission.
To further strengthen the preparedness and monitoring efforts, the Semiconductor Alert System is included under the third pillar of the European Chips Act. The Act aims to enhance the competitiveness, security of supply, and resilience of the European semiconductor field in collaboration with all stakeholders.
In a recent press release, the European Commission welcomed the political agreement reached between the European Parliament and the Council on the European Chips Act. This legislation will not only bolster Europe's competitiveness but also ensure the security of supply and resilience in semiconductor technologies and applications. It includes provisions for a coordination mechanism between Member States and the Commission, facilitating collaboration, monitoring semiconductor supplies, anticipating shortages, and activating crisis measures if necessary.
The EU Chips Act also establishes the European Semiconductor Expert Group (ESEG) as a platform for coordination between Member States and provides advice and assistance to the Commission in implementing the regulation. Once the proposal is implemented, the ESEG will be replaced by the European Semiconductor Board, consisting of representatives from the Member States and chaired by the Commission.
How could such a system help with future supply chain issues?
There is no doubt that the semiconductor industry is a critical component of modern life, especially when considering that almost all electronic devices in existence use some kind of semiconductor. Even if someone tries to live without electronics, the infrastructure that they use and the wider nation that they live in will be dependent on having access to the latest technologies in some shape or form.
It is for this reason that semiconductors are so crucial, and having large supply chain disruptions can be devastating to an economy. As such, having tools in place whereby governments can monitor shortages and disruptions can help to trigger industrial action to ensure a constant supply of semiconductors. As the industry is generally very fragmented, it can be hard to gather data on all those involved with the production of semiconductors, and governments are in a prime position to bring the entire industry under one roof.
Overall, what the EU is launching could help introduce real stability to the EU semiconductor market and may even help to prevent future disasters involving semiconductor supplies should another pandemic or global catastrophe take place.