Focus: Biden's chip dreams face reality check of supply chain complexity

Hyundai Mobis

13/04/2021 12:00

By Hyunjoo Jin and Stephen Nellis
    SAN FRANCISCO, April 13 (Reuters) - To understand President
Joe Biden's challenge in taming a semiconductor shortage
bedeviling automakers and other industries, consider a chip
supplied by a U.S. firm for Hyundai Motor Co's new electric
vehicle, the IONIQ 5.
    Production of the chip, a camera image sensor designed by On
Semiconductor, begins at a factory in Italy, where raw silicon
wafers are imprinted with complex circuitry. 
    The wafers are then sent first to Taiwan for packaging and
testing, then to Singapore for storage, then on to China for
assembly into a camera unit, and finally to a Hyundai component
supplier in Korea before reaching Hyundai's auto factories.
    A shortage of that image sensor has led to the idling of 
Hyundai Motor's  005380.KS  plant in South Korea, making it the
latest automaker to suffer from global supply woes that crippled
production at most automakers including General Motors Co  GM.N 
and Ford Motors Co  F.N  and Volkswagen.
 urn:newsml:reuters.com:*:nL4N2M133C urn:newsml:reuters.com:*:nL1N2LR2VE
    And the winding journey of the image sensor shows just how
complicated it will be for the chip industry to both ramp up
capacity to address the current shortage and re-invigorate U.S.
chip manufacturing. For a graphic, click https://tmsnrt.rs/3dW8nbN
    U.S. President Joe Biden on Monday convened semiconductor
industry executives in Washington to discuss solutions to the
chip crisis, the latest move in a broader effort to bolster the
domestic chip industry.  urn:newsml:reuters.com:*:nL1N2M51JC He's also proposed $50
billion to support chip manufacturing and research as part of
his $2 trillion infrastructure proposal, which he said would
help the United States win the global competition with China.
 urn:newsml:reuters.com:*:nL1N2LT2MZ 
    Much of that money will likely go towards the construction
of multi-billion-dollar advanced chip plants by Intel, Samsung
and TSMC. But industry executives say addressing the broader
supply chain is crucial, and the Biden administration faces
complicated choices on which elements of it to subsidize.
    “Trying to reconstruct an entire supply chain from upstream
to downstream in a single given location just isn’t a
possibility," David Somo, senior vice president at ON
Semiconductor, told Reuters. "It would be prohibitively
expensive."
    The United States now only accounts for about 12% of
worldwide semiconductor manufacturing capacity, down from 37% in
1990. More than 80% of global chip production now happens in
Asia, according to industry data.

    1,000 STEPS, 70 BORDERS
    Producing a single computer chip can involve more than 1,000
steps, 70 separate border crossings and a host of specialized
companies, most of them in Asia and largely unknown to the
public.
    The process starts with plate-size discs of raw silicon. At
chip factories known as 'fabs,' circuits are etched into the
silicon and built up on its surface through a series of
complicated chemical processes.
    The next step - packaging - offers a good illustration of
the supply chain challenges.
    Wafers emerge from fabs with hundreds or even thousands of
fingernail-sized chips on each disc. They must be cut up into
individual chips and put into a package. 
    Traditionally that meant placing each chip onto a “lead
frame” and soldering it to a circuit board. The entire assembly
would then be packaged in a resin case to protect it. 
    That process is very labor intensive, leading chip companies
to outsource it decades ago to countries including Taiwan,
Malaysia, the Philippines and China.
    The packaging step itself has its own supply chain: South
Korea's Haesung DS, for example, makes packaging components for
automotive chips, exporting them to Malaysia or Thailand
for customers including Infineon and NXP. These companies, or in
some cases a sub-contractor, then assemble and package chips for
automotive suppliers like Bosch and Continental, which in turn
supply final products to automakers. 
    “If they (the Biden administration) are going to be
successful with this, they are going to have to help rebuild the
package industry here in the United States," said Dick Otte, CEO
of Promex, a California-based chip packaging firm.
    "Otherwise it is a waste of time. It is like building a
car and not having a body to put on it." 
    But newer chip packaging processes are far less labor
intensive, leading some U.S. chipmakers to believe they can be
brought back from abroad.
    In October, Minnesota-based chip foundry,
SkyWater Technology took over a facility in Florida where it
plans to build out advanced packaging lines.
    “There's kind of an industry-wide agreement that all this
needs to happen here,” Thomas Sonderman, chief executive,
SkyWater Technology, said.
    
    FASTER TURNAROUND
    Rebuilding the U.S. packaging industry would not only
insulate chip companies and their customers from political risk,
it could also help them break free of the long cycles involved
in creating new chips, said Tony Levi, a professor of electrical
and computer engineering at the University of Southern
California.
    By doing more work locally, U.S. chip firms could create
smaller manufacturing runs of chips more frequently, speeding
innovation and potentially creating the capability to more
quickly adjust to demand.
    Levi said that Arizona, Texas and New York – where Intel,
TSMC, Samsung and GlobalFoundries all have existing or planned
facilities – would be suited to cluster supply chain elements
like packaging.  
    “What the U.S. is very good at is close collaboration
between system design, product design and the manufacturing
itself,” Levi said.
    Still, it remains to be seen how the Biden Administration
will balance the demands of the many sub-sectors of the chip
industry. 
    Numerous firms, many of them overseas, provide critical
foundry materials including wafers and gases. The sophisticated
tools used for advanced chip production are mostly made in the
United States, but that's not the case for factory components
such as the robotic systems that whisk chips among the various
process steps.
    On top of that, some in the industry argue that the U.S.
needs to support not only new cutting-edge fabs, but older
technology too. It's the more mature chips that are in severe
shortage, noted Tyson Tuttle, CEO of Austin-based silicon design
firm, Silicon Labs.
    "We have a mismatch of capital in the semiconductor
industry," he said, with too much of the money going to the most
advanced technologies.
    E. Jan Vardaman, President at TechSearch International Inc,
said the chip packaging industry has been under severe price
pressure, leading to smaller margins than chip factories and
chip design firms. "From a financial and economics point of
view, it does not make sense for them to make a big investment."
    "Simply throwing money at this does not solve the problem.
It is a more complex problem." 

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
The global supply chain of a smartphone processor     https://tmsnrt.rs/3dW8nbN
GM, Ford cutting more North American production due to chip
shortage     urn:newsml:reuters.com:*:nL4N2M133C
Hyundai Motor to suspend some S.Korea output due to component
sourcing issues-union     urn:newsml:reuters.com:*:nL1N2LR2VE
As Biden works to fix chips shortage, Intel promises help for
hurting automakers     urn:newsml:reuters.com:*:nL1N2M51JC 
Biden says $2 trillion jobs plan rivals the space race in its
ambition     urn:newsml:reuters.com:*:nL1N2LT2MZ 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Hyunjoo Jin and Stephen Nellis; editing by
Jonathan Weber and Edward Tobin)
 ((hyunjoo.jin@thomsonreuters.com; 82-2-3704-5685; Reuters
Messaging: hyunjoo.jin.thomsonreuters.com@reuters.net))