Prolonged chip shortages and our reliance on the mercy of third-party supply -

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- at #4905
  Tingting Zhang
  Keymaster
  By: Vikhyat Baxi, MSc Electronics, ME Microelectronics.
  
  Engineering Manager. Robway Safety, Adelaide, South Australia
  
  Background
  
  The importance of electronics in our day-to-day life cannot be ignored. Electronics plays a major role in health care, automotive, construction, oil and gas, mining, consumer electronics, safety systems, defence and space technologies. Semiconductor integrated circuits or commonly known as ‘chips’ of various functions play a vital role in electronics systems and sub-system. Production of electronic systems could stop due to the unavailability of a single chip in an electronic system. This can have major impact on company operations and can have severe economic impact on state economy and national economy.
  
  When and how did it start?
  
  The global chip shortages started in early 2020 as a side effect of COVID-19 pandemic, while it appeared short term at the time, the trade war between US and China made it worse. Subsequent severe weather events in 2021 resulted in plant shut-down of Samsung and NXP semiconductors.
  
  Asahi Kasei semiconductor plant in Japan caught fire in October 2020.
  
  Taiwan based Taiwan Semiconductor Manufacturing Company (TSMC) is a major supplier of the world semiconductor market. Taiwan experienced major draught in 2021 which resulted in operational difficulties as semiconductor manufacture requires pure water for processing of semiconductor silicon wafers.
  
  Reneases electronics in Japan, which supplies 30% of the world’s microcontrollers. caught fire in March 2021.
  
  In January 2022, ASML Holding N.V. “Advanced Semiconductor Materials Lithography” photolithography systems, used to produce computer chips was also impacted by fire.
  
  All of the above reasons were serious impacts, and then the Russia-Ukraine war resulted in short supply of neon gas which is used in lasers for chip manufacturing resulting in a significant cost increase of this noble gas. Ukraine produces about half of the global neon supply, and this sparked major concerns among semiconductor manufacturers.
  
  Russia supplies 40% of global supply of palladium which was impacted by trade sanctions imposed on Russia.
  
  All of the above factors resulted in major disruptions in semiconductor supply chain and exposed its vulnerability. The world does not have a backup plan to deal with this crisis and USA and the European Union is working towards sovereignty in the semiconductor supply chain.
  
  It takes 3-5 years for a semiconductor fabrication facility to reach full production capacity.
  
  Short term measures
  
  The Adelaide electronics industry, long known as the electronics hub of Australia is constantly being impacted by the economic cycle and several companies have managed to weather economic cycle storm, but some companies could not survive.
  
  However, despite successfully cruising through the COVID-19 pandemic, while most industries are set to revive and resume growth, the Electronics industry in South Australia, is facing a crunch due to the worldwide chip shortage. This can result in a company coming to a grinding halt, production shut down, loss of jobs and lack of supply to vital industries both nationally and globally.
  
  To mitigate this impact, the South Australian Electronics Industry needs to be ready to increase their stockpiles as a good KPI for a few years. However, this can only be partially achieved and State Government intervention will be required to support this industry with adequate fiscal resources, so this key industry can make the bold move to increase stock levels to ensure that the supply chain of the vital electronics systems and sub-systems are not impacted.
  
  There are several way chip shortages can be managed in electronics system.
  - Design parts out which are in short supply or with long lead time.
  - Stock chip which are in short supply or with long lead time.
  - Good communication between PCB manufacturer, suppliers of components and OEMs.
  Design parts out which are in short supply or with long lead time.
  
  This option is viable only if there is 100% guarantee that alternate part selected will not be in short supply or will not become obsolete in near future. Even after designing parts out if we have to increase stock level of alternate design then a trade-off needs to be made on the most viable option.
  
  Stock chip which are in short supply or with long lead time.
  
  The Electronics industry must consider increasing its stock of critical chips which are in short supply coupled with providing a commitment to electronics printed circuit board manufacturers or BOM source agencies. This can only be achieved if electronics industry as a group decides to increase stock level as a good KPI for few years. The Electronics industry in South Australia is facing chip shortage during a time which is meant to bring business to normality after COVID-19 pandemic. The representative body of the Electronics Industry in South Australia must present a case to encourage the State Government to invest in the industry to help us weather this storm of chip shortages.
  
  Good communication between PCB manufacturer, suppliers of components and OEMs.
  
  In the middle of this chip shortage, effective communication between PCB manufacturer, supplier and OEMs is required. Effective communication is of vital importance. This could involve regular meetings, cross checks of stock levels, communicating existing and potential shortages. This can help in ensuring minimum disruption to supply chain, and also help industry to determine the next development efforts and product road map.
  
  Long-term solution
  
  It is not hard to develop a long-term functional solution if our ground rules as a State and as a nation are clear. Relying on the mercy of third-party supply is a major drawback facing the industry. It could be relying on overseas semiconductor manufacturing facility, it could be relying on third-party equipment, electronics systems, and sub-systems.
  
  Our reliance on overseas supply of either electronics raw materials or electronics sub systems has increased over period of time in past decade. This has resulted in lack of innovation, lack of development and lack of funding to the industry who are willing to design, develop and innovate.
  
  Australia as a nation is heavily dependent on supply of semiconductor chip as Australia does not have a major semiconductor company which can make us independent. Silanna Semiconductor is the only semiconductor fabrication company which support small segment of chip manufacturing and R&D. Silanna is an Australian owned, advanced semiconductor design and manufacturing facility that was incorporated in 1996.
  
  A NSW government-funded Semiconductor Service Bureau will be established at Cicada Innovations in Sydney’s Tech Central Precinct, aiming to “drive sovereign semiconductor capability” and support critical industries “including health, defence and telecommunications.”
  
  A long-term solution can only start if we sow the right seeds to target a specific problem. South Australian and Australian universities do not have adequate funding to encourage semiconductor manufacturing. However, they do have expertise in providing resources in semiconductor chip design, but this is still limited.
  
  Secondly, encouragement of semiconductor manufacturing fabrication facility at State level and national level and encouragement to electronics manufacturers.
  
  Companies in the South Australian Electronics Industry can enhance their engineering capabilities to develop new electronic systems and sub-system so that the South Australian Electronics Industry remains in control of their destiny. Currently, the South Australian Electronics Industry does not have State Government support to enable companies to invest in core engineering development and R&D.
  
  The world is changing and if the relationship between any two countries (whether its, Australia vs any other country, Ukraine vs Russia, USA vs China or China vs Taiwan), is impacting our life line. To protect our national interest and to protect interest of our State we need to act for short term solution and long solution both, this can only be achieved if we maintain, retain and develop electronics eco system of our state.
  
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