The complex supply chain of semi conductor in the era of war and sanctions

“In the modern Era, one who controls the chips supply chain holds more power than Oil”

it all starts with the grain of sand. All the chips that you see in your devices are basically highly refined and logically assembled sand. well its not that simple, it takes a whole lot of engineering and domain expertise to convert sand to fully functioning high tech processors.

The purpose of this article is not to give a technical background of the chip fabrication, there are many other great articles that cover it in a much better details, we want to cover the changes and the impact on the supply chain in the new era of war and sanctions.

Geopolitical factor

The semiconductor industry is facing unprecedented challenges and opportunities in the midst of a global chip shortage, rising geopolitical tensions, and rapid technological innovation. Semiconductors are the fundamental building blocks of our digital world, enabling everything from smartphones and laptops to cars and satellites. However, the supply and demand of these critical components are influenced by complex factors, such as trade disputes, national security concerns, environmental regulations, and consumer preferences.

One of the major geopolitical forces affecting the semiconductor industry is the US-China rivalry, which has led to increased scrutiny and restrictions on chip exports and imports, as well as investments in domestic production and innovation. The US Senate passed a bill in June 2021 to allocate USD 250 billion to boost the competitiveness and resilience of the US semiconductor sector, including USD 52 billion for subsidies and incentives for chip manufacturing and research. China, on the other hand, has been pursuing its own ambitious plans to become self-reliant and dominant in the global semiconductor market, investing heavily in chip design and fabrication, as well as acquiring foreign technologies and talent.

The semiconductor industry is expected to grow at a compound annual growth rate of 8.6% from 2021 to 2026, reaching USD 1.2 trillion in revenue by 2026. However, the industry also faces uncertainties and risks from the ongoing chip shortage, which could last until 2023 or beyond, as well as from the changing geopolitical and technological landscape, which could create new opportunities and threats for the industry players. Therefore, the semiconductor industry will need to adopt agile and resilient strategies to cope with the dynamic and complex environment, as well as to leverage the innovation and collaboration potential of the industry ecosystem.

The below table tells which countries have their strength in the respective areas of chip manufacturing.

The technology Players – TSMC, Intel, Samsung and ASML

TSMC is the world’s largest contract chipmaker, and the leader in advanced process nodes. It is currently mass producing chips using its 5 nanometer (nm) process, and plans to start volume production of its 3 nm process in the second half of 2022. TSMC also uses extreme ultraviolet (EUV) lithography, a cutting-edge technology that enables more precise and efficient patterning of transistors, for its 5 nm and 3 nm processes. TSMC also offers various packaging technologies, such as InFO, CoWoS, and SoIC, to enhance the performance and functionality of its chips. TSMC’s customers include Apple, AMD, Nvidia, Qualcomm, and MediaTek, among others.

Samsung is the world’s second largest contract chipmaker, and the main rival of TSMC in advanced process nodes. It is also mass producing chips using its 5 nm process, and aims to start mass production of its 3 nm process in 2023. Samsung also uses EUV lithography for its 5 nm and 3 nm processes, as well as for its 7 nm process. Samsung also has various packaging technologies, such as eXtended-Cube (X-Cube), Interposer-Cube (I-Cube), and Fan-Out Panel Level Package (FO-PLP), to improve the performance and integration of its chips. Samsung’s customers include Qualcomm, IBM, Nvidia, and Google, among others. Samsung also produces its own chips, such as the Exynos mobile processors and the memory chips.

Intel is the world’s largest chipmaker by revenue, and the dominant player in the PC and server markets. However, it has been struggling to keep up with TSMC and Samsung in advanced process nodes, due to delays and defects in its 10 nm and 7 nm processes. Intel’s 10 nm process is equivalent to TSMC’s and Samsung’s 7 nm process, while its 7 nm process is equivalent to TSMC’s and Samsung’s 5 nm process. Intel also uses EUV lithography for its 7 nm process, which is expected to launch in 2023². Intel also has various packaging technologies, such as Foveros, EMIB, and Co-EMIB, to enable more flexible and modular chip designs. Intel mainly produces its own chips, such as the Core and Xeon processors, but also plans to offer foundry services to other customers, such as Amazon, Qualcomm, and Microsoft, among others.

ASML is a Dutch company that is the world’s leading supplier of lithography equipment for the semiconductor industry. Lithography is the process of using light to etch patterns of transistors onto silicon wafers, which are then cut into individual chips. ASML’s lithography machines use extreme ultraviolet (EUV) light, which has a very short wavelength and can create very fine features on the chips, enabling higher performance and lower power consumption. ASML plays a vital role in the chip supply chain, as it is the only company that can produce EUV lithography machines, which are essential for making the most advanced chips, such as those using 5 nm or 3 nm processes. ASML’s customers include TSMC, Samsung, Intel, and other major chipmakers, who rely on ASML’s machines to maintain their technological edge and meet the growing demand for chips in various applications, such as smartphones, computers, cloud servers, and artificial intelligence.

How is the geopolitical situation impacting the technology players

The US has imposed various sanctions and restrictions on Chinese chip makers, such as Huawei, SMIC, and Hikvision, to limit their access to advanced chip technology and equipment, as well as to prevent them from using US-made chips or software in their products, citing national security and human rights concerns. These sanctions have severely hampered the development and competitiveness of China’s semiconductor industry, as well as disrupted the global chip supply and demand balance.

The US has also pressured the Netherlands to block ASML from selling its EUV lithography machines to China, as well as to stop its US employees from servicing or supporting any customers in China, to prevent China from acquiring the key technology for making advanced chips. These measures have affected ASML’s business prospects and customer relations in China, as well as its ability to maintain and upgrade its existing machines in the country.

The US has also requested chip supply data from TSMC, Samsung, and other chip makers, to monitor the global chip production and allocation, and to ensure the priority and security of US chip supply, especially for the automotive, defense, and medical sectors. These requests have raised concerns among the chip makers and their customers, as they may expose their confidential and sensitive information, as well as subject them to potential sanctions or penalties if they do not comply or cooperate with the US.

The US has also launched various initiatives and policies to boost its domestic semiconductor industry, such as the CHIPS for America Act, the American Foundries Act, and the Trusted Foundry program, to provide funding, incentives, and support for US chip makers, such as Intel, to build new fabs, invest in R&D, and secure the supply chain. These initiatives and policies have increased the competition and collaboration among the US, Taiwan, and South Korea, as well as the opportunities and challenges for the global chip market.

The future of the chip supply chain and new players

The US is looking to form a non-Chinese supply chain, and has partnered with India to build a resilient semiconductor ecosystem, as well as to help India play a larger role in the global chip supply chain. The US and India have signed a memorandum of understanding to enhance their cooperation and collaboration on chip design, manufacturing, and innovation, as well as to address the chip shortage and the security and reliability of the chip supply chain. The US has also offered to provide funding, incentives, and technical assistance to India to attract more chip makers and investors to set up fabs and R&D centers in India, as well as to support the development of India’s domestic chip industry and talent pool.

India has the potential to emerge as a global chip powerhouse, as it has a large and growing market for electronics and digital services, a strong and skilled workforce in software and engineering, and a strategic location and geopolitical alignment with the US and other allies. India also has some existing advantages and capabilities in chip design, testing, and packaging, as well as in niche segments such as automotive, aerospace, and defense. India aims to become a global electronics hub, and has launched various initiatives and policies to promote and facilitate the growth and competitiveness of its semiconductor industry, such as the Production Linked Incentive (PLI) scheme, the Modified Special Incentive Package Scheme (MSIPS), and the National Policy on Electronics (NPE)

Conclusion

Sources

cigionline, hbr, seekingalpha, verge, thediplomat