Infineon Technologies highlights battles for Semiconductor manufacturing and the fragilities of the supply chain
26 June 2023
COVID-19 lockdowns and a pandemic-induced bottleneck in semiconductor production caused shortages that impacted on the output of everything electronic. As the global powers battle for onshoring electronic component manufacture, the securing of the manufacturing of these critical components is set to heat up. However, the elephant in the room is who controls the raw materials. This article is a snapshot of what's happening in the battle for semiconductors, and highlights the supply chain vulnerabilities, together with how to combat them.
Infineon is the world’s largest supplier of silicon chips to the car industry
Munich-based Infineon Technologies Semiconductors enables game-changing solutions for green and efficient energy, clean and safe mobility, as well as smart and secure IoT. And, even though combustion engine car sales are coming to an end, Infineon is set to benefit from the transition to electric vehicles, as these require more chips than those run by conventional engines. However, despite the recent announcement of the approval to invest €5 billion for a semiconductor factory in Germany, it's considering moving more production to the US. According to the Financial Times, Peter Wawer, head of Infineon’s green technology division, said the German chipmaker was reviewing requirements in the Inflation Reduction Act that relate to the value of goods manufactured in the US.
The pandemic revealed the reliance on semiconductors and Taiwan
Taiwan dominates the outsourcing of semiconductor manufacturing, accounting for around 20% of the global semiconductor industry. Taiwan's role in chipmaking has been under the spotlight since the global shortage of semiconductors forced production to stop in multiple industries across the world. The pandemic may have passed, but throw in China's President Xi Jinping, and his aims of “reunification” with Taiwan and view that this “must be fulfilled” – and supply chain insecurity remains. Global manufacturing needs a plan B, so if something happens between China and Taiwan, it can continue.
The war in Europe and its impact on the semiconductor industry
The Russia-Ukraine war has the potential to exacerbate semiconductor supply chain issues and the chip shortage that has impacted the industry for the past two years. This is because Russia and Ukraine are major producers of two key materials used in semiconductor manufacturing; neon and palladium. Ukraine represents about 70/80% of the global supply of neon, whilst Russia produces about 35/45% of the world's palladium supply.
The race to dominate production of this essential electronic component
Semiconductors are a critical component because they are the brains behind most technology applications. They are used in everything from medical devices and clean energy, to transportation and defence. They’re likely to be a major player in future tech, such as augmented reality, artificial intelligence, and the surge of IoT-connected devices. This is because semiconductors or microchips are used to create an integrated circuit (IC), creating a single chip that can be used for computation or other tasks.
Disruptive technologies will drive a dynamic economy and the balance of power
Taiwan Semiconductor Manufacturing Company Limited (TSMC) and South Korea’s Samsung are the two most advanced chip manufacturers, but they both rely on tools from the U.S. and Europe. As semiconductor designers and manufacturers seek to make smaller, more powerful chips, it’s become a critical area for China as it competes with the U.S. for supremacy in the latest innovations.
US companies are leaders in the production of equipment used to produce semiconductors with 31% of the turnover, closely followed by European ones with 27%. EU companies are among the largest suppliers of chemicals and gases in this supply chain, accounting for 34% of world turnover in 2020.
As a result, China has committed to increase research and development in pursuit of “major breakthroughs” in technology.
America fights back on US semiconductor manufacturing
Although the U.S. is superior in designing semiconductor products, it is Taiwan and South Korea who have strength in manufacturing advanced chips. This is why the U.S. government is pulling out all the stops to boost domestic semiconductor manufacturing.
It's thought to be around 30% more expensive to build a semiconductor factory in the U.S. as it is overseas, due to subsidies and other economic factors. The Inflation Reduction Act (IRA), and Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act, are both designed to boost U.S. competitiveness in the manufacture of semiconductors. As well as the emerging disruptive technologies of renewable energy, batteries, and electric vehicles (EVs).
As part of the bipartisan CHIPS and Science Act, the Department of Commerce is overseeing $50 billion to revitalise the U.S. semiconductor industry. The law aims to encourage investments in domestic semiconductor manufacturing capacity. It includes $39 billion in subsidies for chip manufacturing on US soil along with 25% investment tax credits for costs of manufacturing equipment, and $13 billion for semiconductor research and workforce training, with the primary aim of countering China.
Biden Administrations’ Inflation Reduction Act (IRA) offers companies moving manufacturing to the states a package of subsidies and tax incentives. This aims to accelerate their domestic production of green technologies. As a result Intel, one of the world's oldest and biggest chipmakers, is set to invest more than $40 billion on new semiconductor plants in the U.S. — two in Arizona and two in Ohio — and one advanced packaging facility in New Mexico.
The EU's goal is to quadruple its current chip capacity by 2030
The EU has set a goal of doubling its share of global chip production to 20% by 2030 by quadrupling its current capacity. Under the European Chip Act, the European Commission has set aside a total of €15 billion for public and private semiconductor projects until 2030. Back in May, at the ground breaking ceremony for the Infineon semiconductor factory in Dresden, European Commission President Ursula von der Leyen, said the construction of the new factory was a milestone in mass chip production for Europe.
"We are all experiencing how drastically geopolitical risks have grown. This is why it is vital that we in Europe strengthen the supply chains of our most important goods and technologies."
Ursula von der Leyen, European Commission President
The Dresden plant will produce power semiconductors and analog/mixed-signal components, and at full capacity, its annual revenue will be comparable to the €5 billion investment. Analog/mixed-signal components are used in power supply systems such as energy-efficient charging systems, small vehicle motor control units, data centres and Internet of Things (IoT) applications. The interaction of power semiconductors and analog/mixed-signal components makes it possible to create particularly energy-efficient and intelligent system solutions.
So what does this mean?
The short answer is that manufacturing will continue to encounter availability pressures for semiconductors, as the supply chains flex against this complex and dynamic backdrop. The supply and demand of semiconductors and any related components required, will also be competing with the growing needs of the fast-accelerating green agenda. Increased competition among manufacturers for in-demand products will remain fierce, as the industrial and automotive sector tries to stay ahead of shortages and market trends before they affect production. Together with imbalance of the raw materials supply chain, the future remains unpredictable, and manufacturing supply chains need to be resilient.
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